Rakesh had recently opened a demat account and trading account and now, he wished to learn more about how to invest in the share market. So, he reached out to his friend Kamal, who’d been in the trading scene for years now.
“Kamal, I’m only just starting my investment journey now, and while I know a bit about how to invest in the share market, I’m not sure which stocks to invest in. Could you guide me through this phase? After all, you’ve been trading for around 5 years now, and I could really use some seasoned advice,” ventured Rakesh.
“Of course. I’d be glad to help you,” Kamal admitted as he gave Rakesh a pat on his back. “Since you’re a beginner, I suggest you start investing in mutual funds before moving on to invest directly in equity shares. In fact, opportunity funds may just be the perfect place for you to begin your journey from,” opined Kamal.
Piqued by this suggestion, Rakesh went on to enquire about it further. “Tell me Kamal, what are these opportunity funds that you’re talking about?”
“Let me explain,” began Kamal. “An opportunity fund is a type of mutual fund that generally invests in companies and industries where there are many opportunities for growth. Mutual funds are managed by fund managers, and if these professionals anticipate good chances of growth in certain sectors or companies, they invest your funds in the stocks of those companies.”
“So, can I enjoy good returns by investing in these funds?” asked Rakesh.
“There’s a great likelihood that you will,” reassured Kamal. “In fact, the sole purpose of opportunity funds is to maximize the gains for the investors like you. As long as you have a demat and a trading account, you can invest in these funds.”
“That sounds great!” Rakesh was excited. However, he was quickly riddled with another doubt. “Are opportunity funds restricted to any particular industries or companies?” he asked Kamal.
“No, not at all. Fund managers of opportunity funds scout the entire financial market for investment opportunities. Depending on the nature and the profitability offered by a potential opportunity, these funds may invest in large-cap, mid-cap, or small-cap companies. Some funds even invest in a mix of these three.”
“It sounds like I have plenty of opportunities then,” Rakesh admitted. “But, if we were to get a bit more specific, Kamal, what are some of the industries that opportunity funds invest in?”
“That varies from one fund to another,” Kamal began. “Generally, though, managers of opportunity funds tend to gravitate towards industries and sectors with a high potential for growth. This keeps changing, depending on the economic, policial, and social scenario. Broadly speaking, however, fund managers may invest in sectors such as technology, automobiles, power generation, oil and gas, banking, pharmaceuticals, and even infrastructure.”
Rakesh was impressed. “I bet it takes a great deal of research to identify these lucrative areas then, isn’t it?”
“It sure does. And since the fund manager’s goal is to maximize your gain, scouting for opportunities doesn’t just end with the equity markets alone. There are several areas for growth in the debt market as well, and the manager of an opportunity fund may choose to target this segment. Some lucrative opportunities in the debt market include long-term bonds, short-term bonds, and even government securities.”
Rakesh now saw why Kamal had suggested that he invest in opportunity funds. Still, he wanted to make doubly sure that it was the right option for him. So, he prodded on. “Will investing in these funds help me satisfy my long-term financial goals, Kamal?”
“Of course it will! Opportunity funds are designed to help investors meet their long-term financial goals. They are the perfect investment opportunity for new investors like you, who have the appetite for a certain degree of risk. Another great thing about these funds is that you can even reduce the risk and increase the return by combining them with other investment options. Your demat account and trading account together open up a world of choices,” said Kamal reassuringly.
“I’m excited to begin this new journey, Kamal. Do you have any final bit of advice or some tidbit of information that could help me?” Rakesh asked his friend.
Laughing endearingly at Rakesh’s endless appetite for knowledge, Kamal volunteered another bit of useful information.
“Most opportunity funds tend to possess a concentrated portfolio, with assets from just 4 or 5 sectors or industries. This portfolio concentration increases the potential for outperformance. However, it also increases the risk greatly, making opportunity funds a high risk-high reward proposition. So, remember to balance your investment portfolio accordingly.”
“And also, before putting your demat and trading account to use for investing in opportunity funds, it would be a wise idea to check their performance. The fund manager’s experience and their ability to identify the right opportunities are also equally crucial factors for determining the fund’s performance,” concluded Kamal.
“I must say, that was very enlightening. Thank you for shining some light on this wonderful opportunity, Kamal.” And with that, Rakesh was about to take off, before Kamal interrupted his train of thought with one last word of advice.
“Keep learning about how to invest in the share market, Rakesh. There’s always something new every day.”