Investor inflows in specialized investment funds (SIFs) have grown by 200% in the current financial year, while GIFT City registered users have increased by 68%, according to reports from Mint. These enquiries are primarily driven by the appeal of exclusive products available to investors committing over ₹10 lakh. The psychology of novelty and narratives built around these new products often trigger investors to take investment bets, with the appeal of trying something new and gaining access to opportunities others may not have discovered.
Financial experts recommend investors evaluate six critical factors before committing to new investment products. The first question involves understanding the product's risks and what could go wrong, as reported by Mint. Secondly, investors should determine where the product fits in their portfolio - whether as a core holding or tactical allocation. Thirdly, they should assess whether the product adds something new to their portfolio or increases exposure to existing holdings. Fourth, investors must evaluate whether expected returns beat inflation on a post-expense, post-tax basis and exceed existing investments by a meaningful margin.
Fifth, investors must understand the costs involved and the ease of capital recovery, particularly important for unlisted stocks where there is no transparent price discovery and liquidity is low. As reported by Mint, this increases non-direct costs and illiquidity in the portfolio. Finally, investors should consider taxation simplicity, with those seeking international exposure through GIFT City needing to understand that non-mutual fund investments are treated as foreign investments requiring Schedule FA and other foreign asset reporting in ITR.
Financial educator Mrin Agarwal from Finsafe India Pvt. emphasizes that for most investors, a simple portfolio combining broad-based mutual funds and NPS works well for long-term goals, according to Mint reports. Newer investments should be tracked for several years before investing, and these are more tactical and unique investments requiring the ability to accept volatility or negative returns. The key strategy is to find a few outstanding investments rather than pursuing everything that is trending.
