Volume: III, Issue: VI, July 2010
The Art of choosing
Everyone likes to have multiple choices to choose what he wants. However, choice always creates a challenge to decision
making. This is more so in case of choice of investment decision. Choosing an investment option is trickier as it is non-
tangible and feedback is time consuming. Moreover, in case of investment option over a period of time, we can compare the
returns of the option chosen over that not chosen. If the investment option chosen has underperformed options not
chosen, there could be regret. This may not be the case with choices regarding non-investment options as we do not get a
chance to evaluate options not chosen and compare with that chosen.
There are many choices as far as mutual fund investments are concerned. There is a concern that the choices are quite
baffling. Some aspects that drive investors behavior as far as investment is concerned are discussed.
1. Investors look for help from the financial advisor or from the service provider (Mfs):
When investors have multiple choices, they need a little handholding in helping them to take the appropriate decision.
They need a choice architect which guides him towards his/her investment requirement. An appropriate choice befitting
to his/her investment objective, risk –return profile, tax status and investment horizon would what the financial advisor
and manufacturer has to ensure for his clients.
2. Investors need default option
Inertia is a common human trait. Investors have a strong tendency to go along with the status quo option. The power of
inertia can be harnessed by a well chosen default options. Top schemes or flagship schemes of mutual funds act as
default options.
3. Need to have inferior options
People decisions are often affected by how problems are framed and by irrelevant but comparable options. In one
frequently cited example, a person is offered cash or a branded pen, he chooses mostly the cash. However, if offered
cash, branded pen or an inferior pen, more will choose the branded pen. A few inferior investment options are required
to nudge people to choose the intended option.
4. Knowing what you like
It is easy to choose what one likes to eat or munch. It is quite difficult to choose an investment option for retirement
planning or for creation of corpus or nest egg. While deciding on the investment options for retirement planning, one
should visualize various scenarios of his/her needs and future performance of portfolios. When investors have hard time
predicting how their choices would perform over a period of time, a gentle nudge would help them in their decision.
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Volume: III, Issue: VI, July 2010
5. Beware of the empathy gap
Ones inability to predict future behavior under emotional strain is called empathy gap. After a hearty meal, one cannot
visualize how it will be to be hungry. This distorts the choice. In the pink of health or earning well, one cannot visualize
how he/she will be during the winter of his/her life and priorities could be misplaced. However, one needs to choose the
option now and reduce the empathy gap.
Not having any choice or having Hobson’s choice may be preferred alternative but definitely not an ideal one. To choose
or not to choose, one has to make an investment choice towards his /her financial security.
STATUTORY
This document has been prepared by UTI Asset Management Company based on internal views / thoughts. This is for
information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds
of UTI Mutual Fund. Mutual fund investments are subject to market risks. Please read the Scheme Offer Document
carefully before investing. REGISTERED OFFICE: UTI Tower, ‘Gn’ Block, Bandra Kurla Complex, Bandra (E), Mumbai -
400051. Tel: 66786666. STATUTORY DETAILS: UTI Mutual Fund has been set up as a Trust under the Indian Trust Act,
1882. SPONSORS: State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India
(liability of sponsors limited to Rs. 10,000/-). INVESTMENT MANAGER: UTI Asset Management Co. Ltd. (Incorporated
under the Companies Act, 1956). TRUSTEE: UTI Trustee Co. (P) Ltd. (Incorporated under the Companies Act, 1956).
RISK FACTORS: All investment in mutual funds and securities are subject to market risk and the NAV of the funds may go
up or down depending upon the factors and forces affecting the securities markets. Past performance of the
sponsors/Mutual Fund/Scheme(s)/AMC is not necessarily indicative of future results. Realization of all the assurances and
promises made, if any, are subject to the laws of the land as they exist at any relevant point of time. Please read Scheme
Information Document (SID) carefully before investing.
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