PICK­ING THE WIN­NERS

We bring you mu­tual funds that have given the high­est re­turns con­sis­tently, and how to gain from them.

Business Today - - CONTENTS - By Renu Ya­dav Il­lus­tra­tions by Raj Verma

The past two-three years have seen a sig­nif­i­cant shift in in­vest­ing pat­terns of many In­dian in­vestors, who till re­cently had strong pref­er­ence for phys­i­cal as­sets such as gold and real es­tate. The in­crease in house­hold in­come and poor per­for­mance of tra­di­tional av­enues such as fixed de­posits, real es­tate and gold nudged many in­vestors to­wards mar­ket-linked prod­ucts such as eq­ui­ties. The real es­tate sec­tor is go­ing through un­prece­dented stag­na­tion and has wit­nessed price cor­rec­tion across a few mar­kets. Gold prices have largely re­mained range bound in re­cent years. The rate of in­ter­est on fixed de­posits de­clined to al­most a decade low in 2017. Even af­ter some nom­i­nal in­crease in 2018, rates are still low, around 7.5 per cent, and post-tax re­turns even lower. There­fore, many in­vestors were forced to scout for other op­tions.

With eq­uity mar­kets do­ing rel­a­tively bet­ter, many peo­ple have started in­vest­ing or putting in more money into eq­ui­ties. The num­ber of ac­tive de­mat ac­counts has tre­bled to around 34 mil­lion in Novem­ber 2018 since 2007.

Many in­vestors are rout­ing their in­vest­ments in eq­ui­ties through mu­tual funds. The share of mu­tual funds among the to­tal fi­nan­cial sav­ings has gone up from 10 per cent in March 2016 to 14 per cent in March 2018, ac­cord­ing to a re­port by rat­ing agency Crisil. Mu­tual funds have seen un­prece­dented in­flows over the past three years. Eq­uity mu­tual funds have re­ceived ` 2.66 lakh crore as net monthly in­flows for the past three years

end­ing Oc­to­ber 2018.

The av­er­age as­sets un­der man­age­ment (AAUM) of mu­tual funds has tre­bled from around ` 8 lakh crore in the Sep­tem­ber-ended quar­ter of 2013 to around ` 24 lakh crore for the same quar­ter of 2018.

Eq­uity mar­kets have have re­warded in­vestors well over the past few years. The av­er­age three-year re­turn across cat­e­gories is around 11 per cent in eq­uity mu­tual funds, while over the five-year pe­riod it is around 18 per cent. The best per­former has been the cat­e­gory of small-cap funds, which has de­liv­ered an an­nu­alised re­turn of 23 per cent over a five-year pe­riod. Mid-cap funds re­turned 22 per cent while large-cap funds de­liv­ered a re­turn of 13 per cent on an av­er­age over a five-year pe­riod. The top per­form­ing fund in the small-cap cat­e­gory, Re­liance Small Cap, has given a re­turn of 31 per cent over the past five years, while SBI Small Cap is not far be­hind with a re­turn of 30 per cent.

In the mid-cap space, L&T Mid­cap tops the re­turns chart with an an­nu­alised re­turn of 25.45 per cent. Ko­tak Emerg­ing Eq­uity is the next best in the cat­e­gory with a re­turn of 24 per cent.

Re­liance large-cap is the top per­former among large-cap funds with a re­turn of 18 per cent while SBI Bluechip is at sec­ond po­si­tion with 15 per cent re­turn over three

Volatile Times

The past three months of volatil­ity in eq­uity mar­kets have, how­ever, left in­vestors jit­tery. S&P BSE Sen­sex, the broad eq­uity mar­ket in­di­ca­tor, slipped around 14 per cent (around 5,500 points) from its all time high of 38,896 in Au­gust 2018, to touch a low of 33,349 in Oc­to­ber. It is cur­rently hov­er­ing around the 35,000 level. The in­dex has lost around 5-6 per cent each in Sep­tem­ber and Oc­to­ber. The cor­rec­tion is even

more sig­nif­i­cant among the mi­dand small-cap in­dices. S&P BSE Mid­cap has lost around 16 per cent while S&P BSE Small­cap has lost around 25 per cent (this year till mid-Novem­ber).

Most eq­uity mu­tual funds have given neg­a­tive re­turns over a three-month pe­riod. The cat­e­gory of large-cap funds is down around 7 per cent while the worst af­fected are small-cap funds with an av­er­age loss of around 10 per cent.

The past two-three months have been test­ing for in­vestors, but they have shown re­silience. “It has been a dif­fi­cult time for many in­vestors who haven’t ex­pe­ri­enced this be­fore,” says Satyen Kothari, Founder and CEO, Cube Wealth. De­spite the re­cent mar­ket cor­rec­tion, in­vestors have con­tin­ued with their SIP in­vest­ments. In fact SIP in­flow has touched an all time high of ` 7,985 crore in Oc­to­ber, which is more than dou­ble of

` 3,122 crore in April 2016.

“The in­dus­try showed re­silience de­spite the re­cent mar­ket events and the en­su­ing volatil­ity in both debt and eq­uity seg­ments. Over the last year, there has been 30 per cent growth in re­tail fo­lios, 14 per cent growth in re­tail AUM and over 40 per cent growth in monthly SIP con­tri­bu­tions. This shows that re­tail in­vestors con­tinue to re­pose their faith in mu­tual funds,” says N.S. Venkatesh, Chief Ex­ec­u­tive Of­fi­cer, As­so­ci­a­tion of Mu­tual funds of In­dia (AMFI).

The to­tal num­ber of ac­counts (or ‘fo­lios’ in mu­tual fund par­lance) as on Oc­to­ber 31, 2018 stood at 79 mil­lion, while the num­ber of fo­lios un­der eq­uity, ELSS and bal­anced schemes, wherein the max­i­mum in­vest­ment is from re­tail seg­ment, stood at 66.5 mil­lion. This is the 53rd con­sec­u­tive month wit­ness­ing a rise in the num­ber of fo­lios.

“Many first-time in­vestors who got at­tracted af­ter wit­ness­ing the re­turns in 2017 have not been spooked by the re­cent volatil-

ity,” says Vi­jay Kuppa, Co-Founder, Orowealth.

This shows that in­vestors have ma­tured over time and un­der­stand that volatil­ity is in­dis­pens­able in eq­uity in­vest­ing.

“We be­lieve that In­dian in­vestors have ma­tured in their ap­proach to­wards in­vest­ments over the years. This is largely due to the col­lab­o­ra­tive work to­wards in­vestor aware­ness done by the me­dia, dis­trib­u­tors, AMCs and AMFI through its cam­paign – Mu­tual Funds, Sahi Hai. Over the past few months, when the mar­kets have been volatile or have cor­rected, we have re­ceived steady in­flows,” says Nimesh Shah, Manag­ing Di­rec­tor and CEO, ICICI Pru­den­tial AMC.

In­vestors un­der­stand that such mar­ket cor­rec­tions are not un­com­mon in eq­uity mar­kets. Since April 1979 (the time since data is avail­able), the S&P BSE Sen­sex has de­liv­ered neg­a­tive re­turns only in 43 per cent of the months. On 18 per cent oc­ca­sions, the fall is more than 5 per cent.

Steady Steer­ing

Eq­ui­ties have re­warded those who haven’t lost their calm dur­ing mar­ket volatil­ity and stayed in­vested for the long term. “Eq­uity as an as­set class has the po­ten­tial to gen­er­ate high re­turns; how­ever, it would come with volatil­ity, es­pe­cially in the short term. In­vestors have to ac­cept and em­brace this fact in or­der to cre­ate wealth through eq­ui­ties over a longer pe­riod,” says Sundeep Sikka, Ex­ec­u­tive Di­rec­tor and CEO, Re­liance Mu­tual Fund.

A back of the en­ve­lope cal­cu­la­tion shows that if you had in­vested in an SIP for 10 years on the 10th of any month, you would have lost money only on three oc­ca­sions, and on 51 per cent of the oc­ca­sions, the re­turns would have been more than 20 per cent.

“In­vestors should con­tinue SIPs dur­ing mar­ket down­turns, as it pro­vides the ben­e­fit of ru­pee cost av­er­ag­ing, and they get re­warded in the long term,” says Vi­nay Pa­haria, CIO of Union AMC.

If you have a lump­sum, the best way to in­vest is to first in­vest in a liq­uid fund and then trans­fer to an eq­uity fund (or more than one) over time. How­ever, even if you would have put lump­sum money and stayed in­vested for long term, the chances of you los­ing money were very less, shows past data.

In­vestors shouldn’t get hassled by such mar­ket cor­rec­tions and con­tinue in­vest­ing. “Mar­kets do not nec­es­sar­ily be­have in a lin­ear man­ner as they are in­flu­enced by a host of other fac­tors, both eco­nomic and be­havioural (greed and fear). We would ad­vise in­vestors to fo­cus on their as­set al­lo­ca­tion (debt and eq­uity) and con­sider the volatil­ity of eq­uity mar­kets as a part of wealth cre­ation jour­ney. Ac­cord­ingly, we ad­vise in­vestors to eval­u­ate eq­ui­ties as

“In­dian in­vestors have ma­tured in their ap­proach to­wards in­vest­ments... largely due to the col­lab­o­ra­tive work to­wards in­vestor aware­ness done by me­dia, dis­trib­u­tors, AMCs and AMFI... Over the past few months, when the mar­kets have been volatile or have cor­rected, we have re­ceived steady in­flows” Nimesh Shah, MD and CEO, ICICI Pru­den­tial AMC

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