Invest Directly In Stocks If You Have Adequate Knowledge

I am 42 years old. I have a mutual fund portfolio of about Rs 18 lakh, fixed deposits worth Rs 1.8 lakh and liquid funds worth Rs 2 lakh. I also have life insurance worth Rs 1 crore. I have vested restricted stock units (RSUs) of a NASDAQ-listed company worth Rs 28 lakh, and non-vested RSUs of another company worth Rs 10 lakh. As company stocks are a large part of my annual compensation, how should I liquidate this amount?

You have non-vested RSUs of Rs 10 lakh, which are in the vesting period and, therefore, cannot be utilised or sold until they are vested. Your vested RSUs of Rs 28 lakh in a NASDAQ-listed company can be sold and the money invested in other assets. The investment of Rs 28 lakh in a single stock increases the concentration risk. If the growth of the company declines in the future, then it would have significant impact on your portfolio, as you have only one stock.

So, you can sell the 70-80 per cent of the RSUs either in a staggered manner or in one go, and invest the same in other equity instruments, such as mutual funds and direct stocks for managing concentration risk. You can keep 20-30 per cent of the RSU of the company if you think that a NASDAQ-listed company has good fundamentals and significant growth ahead.

In the prevailing volatile market, you can sell your vested RSUs in a staggered manner and start systematic investment plans (SIPs) in mutual funds. If the markets go down significantly, say 10 per cent or more in the near future, then you can also invest a lump sum in mutual funds on the basis of your risk profile.

I am 35 years old and started saving for retirement two years ago. I have invested in several mutual funds, mainly flexi-caps, debt funds and fund-of-funds (FoFs). I also have a family health insurance plan. I would like to know if I should invest in stocks also to fast-track my portfolio growth. If so, how do I identify the right stocks, and what should be my  approach?

Investing directly into stocks depends on multiple factors, such as the investor’s financial knowledge, knowledge of the market and sectors, understanding of the company’s business, and so on. It also requires periodic monitoring and rebalancing based on research.

These include understanding financial factors that drive stock returns, such as earnings growth, return on equity (RoE), return on capital employed (ROCE), and operating cash flows.

 If you have gained the required knowledge of the stock market, then you can go for direct stock investing. Else, you may consider investing in mutual funds, where the mutual fund manager will select the sector and stock, and periodically monitor and rebalance the portfolio, based on market conditions.

Answers by: Bharat Pareek, Head – Product & Segment (Private Wealth Management) of ICICI Direct

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ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.