Background: A young investor is pretty excited to start investment in market, but he is overwhelmed about mutual funds, shares and the market returns. He seeks to get it clarified and decided to visit a financial advisor. Following is the conversation between the two.

Investor: Hello Mr. Advisor

Advisor: Hello Investor, Welcome and tell me how can I help?

Investor: I am a little confused about investments in general and hence I would like to get some clarification from you before I invest.

Advisor: Sure! Please go ahead.

Investor: So, Yesterday, I visited my bank and met with an executive who discussed Mutual funds and went over a list of “best known funds”, which he had shortlisted. He told me how mutual funds can give upto 12%-15% annualized returns, what is a fund performance, and how it has benefitted a few of his customers. However, I remember you had mentioned earlier to follow a safe approach of asset allocation and building a portfolio. Your approach made me sense then, but don’t you think my money deserves more than an average return?

Advisor:  Of course, However, you are quite new to investing. I want you to follow a systematic approach by starting with low risk funds which will help to assess your risk capacity and you can then proceed as you become more comfortable.

Investor: I like that approach as I am not sure about my risk capability, yet. Can you help me find a few best funds that can offer high returns?

Advisor: I am glad you asked that question – It is one of the most frequently asked question. Short answer is – Google! Simply search for “best fund list” and you will get multiple results. But is that the right thing? Certainly not. The thing that we need to keep in mind is – Every website has their own best fund list. Guess why?

Investor: I am not sure!

Advisor: Well, because these lists are based on probabilities, general prediction, positive or negative views of the person/team who created the list. None of which offers you guaranteed returns, they are mere recommendations.

Investor: I see, that brings up another question – How can someone offer guaranteed returns on Investments? What I have learnt so far is the future performance depends on market behavior and that is pretty unpredictable. Isn’t it?

Advisor: (Smiles) Yes, Market is unpredictable! The question we need to ask ourselves is – If there is no way to know how the market or fund is going to perform in future, then how can we invest only on the basis of best funds which again differs from company to company or website to website?

Certainly, Fund performance and its history is important but that should not be the ‘only’ criteria for fund selection. The factors to consider before starting any investment is – investment goals, time horizon, age, income, risk capacity and taxation. Remember, Investing is not only about high returns but also about managing / minimizing your losses.

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Investor: Ah, that make sense. Now, I understand why that executive was pushing for investments while tagging “high returns”.

Advisor: Glad you understood. Unfortunately, such misleading is quite frequent. Always keep in mind “the more they push you to buy, greater are the chances you don’t need it”.

Investor: I got you. Thank you so much for clarifying my doubts. I feel much more comfortable and confident in my decision making and I think I am ready to kick start my investment horizon.

Advisor: You are very welcome and thank you for asking question in a right way and not using google! Please feel free to come back if you have more questions. Happy Investing!