A K Sridhar is chief investment officer, UTI Asset Management Company.

In this interview, he shares his views on investing and on how to become a stock market investor.

His advice to investors...

1. The biggest mistake investors make is to invest directly in the stock market. They buy individual stocks of which they have very little or no knowledge.

On most occasions, it appears that no serious thought has gone into their investment. Retail investors tend to depend on tips or suggestions from others and assume the other person has evaluated that stock, which is often not the case.

That is why I tell investors who do not have the knowledge to buy stocks to leave it to the experts and invest in the market via a mutual fund.

2. A question asked very frequently by investors is: Should I sell my shares and book profits now?

Unless you desperately need the money to meet an expenditure that cannot be postponed, you need not take it out.

It does not make sense to sell your stocks and put the money in another stock without a very strong reason. Similarly, just because your fund has given a great return, don't sell your units only to take the money and invest in another fund.

Stay invested if you don't need the money for the next one to two years. Take it out if you want to invest in another asset class. Maybe you want to buy some land. Or, maybe, you have a goal like buying a home.

3. Investors who think there is some upside left in the market want to invest now. Those who have never invested in the market but want to do so now should invest cautiously.

Don't try to time the market. However brilliant or seasoned an investor you are, everyone gets fooled sometime or the other when it comes to timing the market.

Yet, sitting on cash is risky. If you do not need the money for two years, you can comfortably invest it in equity. The best way to do so is to invest gradually. If you have Rs 50,000, don't invest it in the market at one go. Put it in a fixed deposit that allows you to make withdrawals. Every month, withdraw Rs 5,000 and deposit it in a mutual fund of your choice.

So, over the next 10 months, the entire money would have got invested but, until it did, it was not lying idle in your savings account. This way, you get the benefit of rupee cost averaging (which means that, over time, you buy more units when the price is low and less when the price is high).

Lump-sum investing at one go is not very efficient.

4. Also, in this current bull run, people are enamoured by market returns. But individuals must always balance their investments and never put all their money in one asset class.

Let's say someone in their twenties wants to invest Rs 100. He should invest in Public Provident Fund/ Insurance/ pension plan (Rs 30), debt funds/ bank deposits (Rs 20) and diversified equity mutual funds or shares (Rs 50).

• Stock picking is about conviction

On investing being an art or a science

I don't think it is possible to categorise investing wholly and solely in one single category.

To a large extent it is scientific -- you look at fundamentals, analyse figures and calculate ratios.

You need to do your homework and must have a certain amount of basic knowledge.

But the job of investing is more than that. It refers to the ability to take a risk, intuition, judgment calls, timing and other such factors which cannot be learnt in a classroom or from any text book. That's what makes it an art.

So, while the basic approach of investing is scientific, one has to apply artistic skills as a final touch to the fundamental approach.

• Why you must invest in stocks

On UTI Asset Management Company having too many funds, including sector funds that go against the principle of diversification.

Currently, we have 28 equity funds and nine debt funds.

I agree sector funds are not as diversified as a diversified equity fund but they do cater to a fixed class of investors.

We offer different funds catering to different investors and leave the choice to them.

We offer our investors a wide range of sector funds: UTI Software, UTI Services Sector, UTI PSU, UTI Pharma & Healthcare, UTI Petro, UTI Auto Sector, UTI Banking Sector. They can pick what they want.

Recently, we renamed UTI Basic Industries Fund as UTI Infrastructure Fund because we were constantly asked why we do not have an infrastructure fund. We realised the name UTI Basic Industries Fund did not convey the fund's objective adequately. So we renamed it simply as a communication measure; the investment objective remained untouched.

Why should I not offer what I feel is a need for some investors? No one can make a value judgment by stating a type of fund is not good at all.

Where our equity funds are concerned, the overlaps would appear to be the three diversified equity funds. Actually, each of these funds has a different style.

UTI Mastershare is a conservative fund with a large number of stocks. It seeks to give a dividend every year.

UTI Master Plus '91 invests in blue chips. It is mostly restricted to the top 100 stocks of the BSE in terms of market cap.

UTI Master Growth invests 50% in stocks of public sector units.

So, even though the above schemes are all diversified equity funds, each one is positioned differently

On his research team

We have a large research team of 13, of which 11 members specialise in equity and two members specialise in debt.

We have a universe of around 210 stocks. This list is not static -- some get deleted and others get added. So, at any given time, there may be around 180 to 210 stocks on our list of stocks that we continuously track.

If a fund manager feels he wants to invest in another stock, he presents an investment argument in its favour; his argument is considered by the team and a decision is made.

On his equity funds not being top performers when compared with its peers

Some equity funds are very aggressive and the portfolio is constantly shuffled. This gives great returns but the risk is high too. I believe we cannot make the funds more risky than the stated objective. Sure, we may deliver more returns but make the funds more volatile as a result. 

You will have to compare each of the sector funds with their peers. Among the sector funds, UTI Infrastructure is a good performer when compared with other infrastructure funds. Our mid-cap fund too has been doing well.

Under the dividend yield fund category, UTI Dividend Yield Fund is doing extremely well compared to its peers.

UTI Master Plus is doing well and is in the top quartile*. It is among the top 13 performers when compared with other diversified equity funds. UTI Master Growth and UTI Master Share fall in the second and third quartile*. We are sure the present portfolio will yield good results soon.

Read UTI funds improve in performance.

To read A K Sridhar's views on contra investing, read Why contra funds make sense in a bull run. 

* Quartile represents quarter of the number in question. So if there are 100 funds being discussed, the top quartile would be the top 25.