Following SEBI's advisory directing AMCs to moderate flows into mid- and small-cap funds, are large caps set to see significant inflows?
FinSafe's Mrin Agarwal and Rupee With Rushabh Investment Services' Rushabh Desai share views.
FinSafe's Mrin Agarwal and Rupee With Rushabh Investment Services' Rushabh Desai share views.
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TVTranscript
00:00 (upbeat music)
00:02 - Welcome, you're watching the Mutual Fund Show.
00:11 I'm Tamannah Anamdar.
00:12 Now this is the show where we tell you
00:14 what is the best direction
00:16 for your mutual fund investments and strategy.
00:19 And we're talking today about large cap funds.
00:22 Now large cap funds are back in focus,
00:24 perhaps will soon be back in vogue.
00:27 The context is an advisory issued by SEBI last week,
00:31 directing AMCs to moderate flows
00:33 into mid and small cap funds and rebalance portfolios.
00:38 Does that mean that we will now see more inflows
00:41 coming into large caps?
00:43 If so, is it time for you to also relook at your portfolio?
00:47 How should you do that?
00:49 What are the best large cap stocks to pick?
00:51 For context, on an average,
00:53 large cap funds have given a return of about 39%
00:57 in the last one year, not shabby at all.
00:59 But small cap and mid cap funds have given over 50% returns.
01:04 And this is why they have continued to attract
01:07 a lot of investments, especially from retail investors.
01:11 To speak more on this and how you should perhaps
01:13 relook at some of those large cap funds,
01:16 we're joined today by Mrin Agarwal,
01:17 founder of FinSafe India and Rushabh,
01:21 founder of Rupee with Rushabh Investment Services.
01:24 Welcome to both of you.
01:25 Thank you so much for speaking with us today.
01:28 Mrin, let me begin with you and just,
01:30 we'll start with your overview
01:31 on the subject that we've picked.
01:33 Large cap funds have always been an investor favorite,
01:36 especially for, I would say, first time investors
01:41 or those who are beginning their investment journey,
01:43 they always find it a safe bet.
01:45 How much should it account for in your portfolio
01:48 in terms of large cap funds?
01:49 And of course, the pertinent question today
01:52 is a time to relook and rebalance
01:55 tilting towards large cap funds.
01:57 So good afternoon, Tamanna.
02:00 And well, I think large cap needs to be part
02:05 of everybody's portfolio, right?
02:08 Given the fact that it is an indicator
02:13 of how economy is also doing, right?
02:16 So I think large caps need to be in everybody's portfolio.
02:20 Now, should you move out of small cap
02:22 and get into large caps,
02:23 especially when we're talking
02:25 about the mutual fund space, right?
02:27 So, of course, I think the decision
02:30 to choose a particular market cap
02:33 is truly based on the risk-taking ability.
02:37 While valuations in small and mid caps
02:39 have run up much above the averages, right?
02:43 So I think they're like 25 to 30%
02:45 above the long-term averages.
02:47 I still feel that if people are in the investment
02:52 or are in the fund for the long-term,
02:54 then they can continue to hold their investment.
02:57 But of course, you need to keep in mind
02:59 that there've been a run-up,
03:00 which means that you may see some sort of a correction.
03:04 And of course, what is really important
03:06 is to just remain invested.
03:08 So my answer would be, yes,
03:10 large cap needs to be part of everybody's portfolio,
03:13 but should you actually move out of a small cap fund
03:17 and then move into a large cap fund at this pace?
03:19 Well, it depends on the risk-taking ability
03:22 and the time horizon.
03:24 We have seen a lot of people
03:25 who've entered these funds in the last one year
03:28 based upon the great performance.
03:30 And certainly, they need to evaluate at this point
03:32 whether they can hold it for the next 10 years.
03:34 If they can't, then they need to actually get out of equity.
03:38 If you can't, then you get out of equity.
03:41 You have to be able to hold.
03:42 The question is about returns.
03:44 And Rishabh, I come to you on this point.
03:46 The reason that small cap and mid-cap funds
03:49 have been so attractive
03:50 is because of the kind of returns they are giving.
03:53 And it's a cycle of sorts, right?
03:56 If investors pour money into these funds,
03:59 then fund managers have to go out and buy these stocks,
04:02 which bring up their prices,
04:04 and then there is more money coming into the funds.
04:07 Now, will that virtuous cycle of sorts, in your view,
04:09 shift to large-cap funds?
04:11 And is it a time to relook at large-cap funds?
04:14 - Tamanna, thank you so much for having me on the show.
04:19 I absolutely agree with Mrin that, you know,
04:23 what she had to say, particularly that, you know,
04:25 large-cap valuations are quite reasonable
04:27 at this point of time compared to mid and small caps.
04:30 But I would also say one thing and one backing
04:34 that, you know, what Mrin said,
04:35 that, you know, stick with your asset allocation.
04:38 You know, I always tell my clients that, you know,
04:41 stick with your goals, understand your goals,
04:43 what is your risk appetite, what is your time horizon,
04:45 and then form your asset allocation.
04:47 See, even today, if someone wants to invest
04:49 in mid and small caps,
04:50 if they have a long-term time horizon,
04:51 then definitely it's not a bad idea to invest
04:55 in the mid and small cap space.
04:58 But the only thing is that if you invest
04:59 at the wrong time, you know, we always say that,
05:03 you know, timing, time in the markets
05:05 is more important than timing.
05:07 But actually, I don't agree with that
05:08 because see, if you invest at the wrong time
05:11 and however, you know, long time horizon you have,
05:14 you're still going to be disappointed with the returns
05:17 what you're getting in the mid and small cap.
05:18 See, when investors invest in the mid and small cap space,
05:22 they are definitely going to expect
05:23 a higher kind of returns,
05:25 not only compared to large cap, but just overall, you know,
05:29 when markets rally and when investors stick
05:32 in the product for say, five, seven, 10 years,
05:34 they're definitely going to expect
05:37 superior double digit returns.
05:38 So in my view, I think, you know,
05:41 if someone invests today in the mid and small cap space
05:43 and definitely, you know, expect a low
05:45 to moderate kind of returns,
05:46 even from a long-term point of view.
05:48 But if you stick with your asset allocation,
05:51 I think, you know, that's the best strategy going forward.
05:55 You know, investors should continue with their SIP,
05:58 but only thing investors should be cautious
06:00 is about the lump sum investment,
06:02 especially in the mid and small cap space.
06:04 - Hmm.
06:05 Lump sum investment in mid and small, be cautious,
06:09 but now what about the focus back on large caps?
06:12 How do you approach this, Rushabh?
06:14 Give us, you know, actionable sort of intelligence
06:18 that our viewers and investors can look at,
06:21 and if they want to rebalance their portfolios.
06:24 First of all, how much of your portfolio
06:25 should be large cap funds?
06:27 - Sita, Mana, this is actually a great time
06:30 if someone wants to rebalance
06:33 in the mid and small cap space.
06:34 Say, for example, if someone has an allocation decided
06:38 of say 50% into mid and small caps,
06:40 and if their allocation has shifted from 50
06:42 to say probably 70, 75 or 80,
06:45 and if they are uncomfortable with, you know,
06:47 that additional risk, what they are taking
06:50 over and above of 50%, what they have decided,
06:52 then of course trimming down that additional risk
06:54 and coming back to their original allocation
06:57 of around 50% would be great.
06:59 So this is a great time if someone wants to reduce
07:02 their risk in the mid and small cap space.
07:04 This is a great time to rebalance, number one.
07:07 Number two, as you correctly pointed out,
07:09 this is also a great time to focus on the large cap space.
07:12 There are three reasons for that.
07:14 One is that the valuations are reasonable.
07:16 Number two, the large cap over a three to five year period
07:20 has underperformed the mid and small cap segment.
07:23 And number three, over the past three years
07:25 from 2021 to 2023, value as a segment
07:29 did tremendously well compared to growth, right?
07:32 So these are the three reasons I feel, you know,
07:35 that one should look at the large cap segment.
07:37 Now, you know, how should investors invest
07:40 in the large cap space?
07:41 There are two ways to do that.
07:43 One is they can look at the traditional large cap funds,
07:48 although I am not recommending active large cap funds
07:51 at this point of time,
07:52 so they can choose the index large caps funds,
07:55 which is the Nifty 50 and Sensex plan.
07:57 And second, because we have seen a lot of flexi cap funds,
08:02 which have been tilted towards, you know, large caps
08:05 around at an average around 50 to 60% of the flexi cap,
08:10 sorry, around 50 to 60% of flexi cap funds
08:14 have exposure in the large cap, heavy large cap segment.
08:19 So either they can go for the traditional
08:23 large cap index funds or flexi cap funds,
08:24 which are tilted towards large caps.
08:27 - Yeah, you know, I just wanna take that question
08:30 with Marin as well, in terms of which would be
08:34 the best options for large caps right now, Marin?
08:37 - Well, you know, I also concur with Rishabh
08:42 that I prefer index funds myself
08:45 because they turn out to be lower cost.
08:47 And if you look at the long-term performances,
08:49 again, you would find that the index funds
08:52 would be a better, you know,
08:53 would give you a better return
08:54 compared to the actively managed large cap funds.
08:58 I also agree that a good way to play the large cap spaces
09:01 through flexi caps as well,
09:02 because then you are not having to look at
09:05 altering the allocation between large, mid and small caps.
09:08 So I would say that, but yes, I mean,
09:10 if you were to ask me right now,
09:12 funds that have done really well in the large cap space
09:15 and which have actually beaten the benchmark
09:18 on a rolling return basis
09:19 would be Canada, Rebecca and Axis.
09:22 - Okay, so Canada and Rebecca,
09:24 Canada, Rebecca and Axis would be your top picks, Marin?
09:28 - Yeah, sure.
09:29 On the actively managed side,
09:31 of course on the index side,
09:33 a good 50-50 index fund like ICICI would work well.
09:37 - Okay, Rishabh, you know,
09:39 your specific funds that you would prefer,
09:41 you said, you know, you prefer index funds as well,
09:44 but the picks that you have in terms of large cap funds?
09:48 - So there are four picks, Tamanna.
09:51 One is UTI Nifty 50 fund.
09:54 Second is HDFC Sensex fund.
09:57 And on the FlexiCap side,
09:59 they can look at DSP FlexiCap fund and UTI FlexiCap fund.
10:02 So these are the four funds one can look at,
10:05 you know, creating a portfolio in the large cap segment.
10:09 - Okay, so now this is the section of the show
10:11 where we answer your queries
10:13 and some very interesting ones that we have today.
10:16 Rishabh Desai and Marin Agarwal are our experts.
10:18 We're going to be answering your questions.
10:20 And the first one is from Shrirang, aged 65 years.
10:25 Their goal is medical expenses
10:28 and really funding medical expenses.
10:31 He says, "I had a SIP, an SBI equity hybrid mutual fund,
10:35 "but stopped it after it collected a corpus
10:38 "of one lakh rupees.
10:40 "Now I am looking for a mutual fund
10:41 "that will provide support for future medical expenses."
10:45 This is a very, very important query
10:48 because after a certain age,
10:51 if you don't have a pre-existing medical policy
10:55 that covers you,
10:57 you might find it difficult to get insurance.
11:00 There will be a lot of, you know, illnesses,
11:03 hospital visits, checkups,
11:05 some things that just do not get covered,
11:07 but those expenses keep adding up as you grow older.
11:10 And this is something that we often overlook,
11:14 using mutual funds as a vehicle
11:17 to make sure that any unfortunate medical issue
11:22 doesn't end up wiping out your savings.
11:24 So thank you, Mr. Shrirang, for sending in that query.
11:27 I'm going to take Mr. Mrin's view first on this.
11:30 And Mr. Mr. Shrirang is starting now
11:34 and is looking for a mutual fund
11:35 that will provide support for future medical expenses.
11:38 How does he go about doing it?
11:40 - Well, given his age and given the goal,
11:44 which is for future medical expenses,
11:46 which could happen at any point in time,
11:49 I would say that he should probably look at investing
11:54 in an ultra-short-duration debt fund
11:56 or into a short-duration debt fund
11:58 if he can hold some amount for three years, right?
12:00 So he could always plan the corpus in such a way
12:03 that a part of it is in ultra-short duration
12:06 that can be immediately pulled out as and when required,
12:09 and the balance amount could be
12:10 in a short-duration debt fund.
12:12 And in both the cases, yes, I do recommend ICFCI and HDFC
12:15 in both of these cases.
12:17 But yeah, I would just stay safe
12:20 and certainly not have an investment
12:22 that has an equity allocation because it can be volatile
12:26 and at the time of need, it may not be,
12:29 it could be down or something of that sort, right?
12:33 So better to stay safe on this.
12:35 - Okay, so even say versus a good old FD for this profile,
12:40 you're saying a debt fund is better, Mrin?
12:44 - It's slightly better.
12:45 I mean, of course you can look at fixed deposit also.
12:47 It's just that fixed deposits
12:48 come with some prepayment penalty and all of that.
12:51 So I just find that the mutual funds
12:53 are more liquid in nature.
12:55 Of course, you could look at keeping a 25% in fixed deposit
12:58 because if it's a real emergency,
13:01 you need an instrument where you can just
13:02 withdraw the money right away,
13:04 and a flexi-deposit would work well over there.
13:06 - Okay, so a flexi-deposit debt fund
13:08 is what Min suggests.
13:09 Rishabh, how would you advise Mr. Srirang,
13:12 who's written in to us?
13:14 - Mrin, Tamanna, I absolutely agree with what Min had to say.
13:18 Stick with the ultra-short duration or low duration
13:23 or even liquid funds, matter of fact,
13:24 because at this point of time,
13:26 liquidity is very important.
13:27 Having a conservative approach at this stage
13:30 is very important.
13:31 That is why we advise us, we always say,
13:33 start early, have your medical insurance done very early
13:38 so that you need to pay low premiums for that
13:43 because when you age,
13:44 see, although I'm not an insurance expert,
13:46 but as you age and then when you take an insurance policy,
13:50 you would need to pay a higher premium
13:52 and in many of the cases or certain of the cases,
13:55 the insurance people don't even give you an insurance.
13:58 So starting early is very important
14:01 and especially at this point of time,
14:03 having a conservative approach in debt mutual funds
14:06 and a fixed deposit should do the job.
14:09 - All right.
14:10 Next query is from Johnson, JK, is aged 54 years.
14:15 The goal is a retirement fund.
14:17 Now he says, "My son is currently in the US
14:20 "and has an NRE account.
14:22 "He wants to start 5SIPs and invest 10,000 each
14:25 "for future retirement corpus."
14:26 Okay, so the retirement is not for Mr. Johnson,
14:29 age 54, but for his son.
14:31 So what funds would you recommend?
14:33 Now, we're not very sure how old Mr. Johnson's son is,
14:37 but if he's 54, one would assume he's 30 at the very least.
14:42 What would you advise, Pran?
14:45 - Well, I would say that since he is young
14:48 and he has time to go for retirement,
14:51 he can certainly take some amount of risk
14:54 and I would veer towards going towards
14:57 mid and small cap funds.
14:58 And I would suggest like Mirai or Kotak
15:02 on the mid cap side and on the small cap side,
15:04 of course, Nippon.
15:05 Of course, they'll have to check which are the funds
15:07 that are taking investments right now.
15:10 But yes, I think these would be the fund choices
15:14 that I would actually recommend.
15:16 Of course, if they want to play it slightly safer,
15:18 then they can go in for flexi cap funds.
15:20 - Okay, so flexi cap funds if they want to play it safer.
15:25 Now, does NRE account holder
15:28 have to do anything additional, Rushabh?
15:30 And of course, the funds that you would suggest,
15:32 but since this detail has been mentioned
15:35 that Mr. Johnson, JK's son is an NRE account holder,
15:38 what does that mean in terms of tax liabilities, et cetera?
15:41 - Even you're an NRI, right?
15:45 There are certain mutual funds which don't allow
15:47 investments.
15:50 So I think, first of all, I'm assuming his age
15:54 to be probably towards the end of 20s
15:56 or a little bit early 30s.
15:59 I would suggest 60%, anywhere between 50 to 60%
16:02 in the flexi cap strategy
16:04 and the rest can be divided into the mid and small cap space.
16:08 There should be no issue in terms of SIP
16:10 or in terms of as long as he has the KYC done
16:15 and NRI status to be updated.
16:18 I don't think there will be any issue for his investments,
16:22 but just check it with the AMCs that which funds are allowed
16:27 and which funds are not allowed.
16:30 - Which are your topics in this flexi cap segment, Rishabh?
16:34 - There are two funds what I can think of
16:37 is one is Parag Parekh Flexi Cap Fund
16:39 and DSP Flexi Cap Fund at this point of time.
16:42 - And Marin, do you want to give any specific advice
16:45 to Mr. Johnson's son?
16:47 - Well, of course, the main thing would be
16:50 to again remain invested, right?
16:52 And I think there is one additional requirement
16:56 which is there is a US declaration form
16:58 that they need to sign as well.
17:00 And some of the AMCs also need you
17:02 to be physically present in India
17:05 when you're signing up for the investment.
17:07 So I think, as Rishabh said,
17:10 that it's good to check with the AMCs
17:12 and check out the AMC websites
17:13 for the specific requirements.
17:16 - Okay, so obviously, convenience also becomes a factor
17:22 when you make that choice if you're an NRI,
17:25 because if you are not available to come down
17:27 and do the paperwork, et cetera,
17:28 then you might want a fund that makes it easier for you.
17:32 All right, the next question is from Dilna,
17:34 who's 36 years old, and the goal is a retirement fund.
17:38 She says, "I've been holding an Axis Blue Chip Fund
17:41 "with a 5,000 rupee SIP, UTI Nifty Next 50 Index Fund,
17:46 "10,000 rupees, and I'm planning to consolidate them
17:49 "into a single large and mid-cap fund
17:52 "to simplify my portfolio.
17:54 "But I'm divided between the Zerodha Nifty 250
17:57 "Large and Mid-Cap Index Fund, which is passively managed,
18:00 "and the HDFC Large and Mid-Cap Fund,
18:02 "which is actively managed.
18:04 "Could you recommend one of these options
18:06 "or suggest another large and mid-cap fund?"
18:10 You know, what is interesting in this question is,
18:12 first of all, it's a retirement goal,
18:14 and I'm glad to see more and more people
18:16 planning now for retirement.
18:18 Secondly, it also brings up the question
18:21 of whether you should go for a passive or an active fund,
18:23 especially when she wants to move
18:25 to a large and mid-cap fund.
18:26 Prin, what would you advise Dilna?
18:28 - Well, you know, it would have been good to know
18:33 what would be the reason to actually get out of two funds
18:35 and move into just one, but that's fine.
18:37 That's their choice.
18:39 See, the difference is really gonna be
18:40 in terms of expense ratio, about 0.6%,
18:44 and the active versus the passive strategy.
18:47 Now, these days, I find that a lot of investors feel
18:51 that the passive strategy is always gonna work out best,
18:54 and that's not true.
18:55 It's not like, you know, every fund in the passive space
18:58 or every fund in the actively managed space
19:01 is going to underperform the passive fund
19:05 or that's gonna underperform the benchmark, right?
19:08 So I think, you know, what is really important
19:10 is that don't get into a passive fund
19:13 just because, you know, you're reading
19:15 or someone's telling you that,
19:16 oh, you know, your passive funds are better.
19:18 I've heard a lot of people think
19:20 passive funds are gonna perform better than active funds.
19:22 There's no way for anybody to know that.
19:25 They're just less expensive.
19:27 So, you know, as long as she's clear about that fact,
19:30 I think it's, you know, it's okay for her to choose
19:33 a passive fund if she feels more comfortable with that
19:37 versus going in with an actively managed fund.
19:41 So, you know, that's what I would suggest.
19:44 Of course, you know, I always say that it's always good
19:47 to have diversification in your strategy.
19:50 So, you know, but here I can't even suggest that
19:53 because she wants to consolidate two funds into one fund.
19:55 So I can't tell her to have a passive fund
19:57 and an active fund.
19:58 So choose based on what you're more comfortable with
20:01 and the strategy that you feel is going to do better.
20:03 But at this point, there's no data to say, you know,
20:06 which is gonna perform better.
20:07 It's just that one is-
20:08 - She's given two options.
20:09 She has given two specific options
20:10 and asked which one is better.
20:12 - Yeah, so I would still want to go
20:16 with the actively managed fund
20:17 rather than just go with the passively managed fund.
20:20 - Okay, in this case, that's the HDFC large and mid cap fund
20:22 because those are the two options she has given.
20:24 It's interesting because when Zerodha
20:27 started its mutual fund venture,
20:29 Nitin Kamath actually put out,
20:31 and he put this out on Twitter,
20:33 on why they've gone for entirely passive funds.
20:36 And they say broader market exposure
20:38 seems to be the only space
20:39 where investors with moderate risk appetite
20:42 can build a healthy portfolio
20:43 and also sleep peacefully at the same time.
20:46 So that seems to be the theory for why passive funds.
20:50 Rushabh, your advice to our viewer.
20:53 - Tamanna, I think we just keep it very simple
20:57 is, you know, have one active fund and one passive fund
20:59 because it's large and mid cap.
21:01 So around, you know, 40, 50% will be in the large caps
21:04 and 40, 50% will be in the mid cap space.
21:07 And also have one active fund and one passive fund
21:09 because we have to accept the fact that today
21:12 a lot of active funds are, you know,
21:15 underperforming even from a seven year
21:16 or a 10 year perspective, right?
21:18 And seven year and 10 year periods
21:20 are very long period of time
21:22 and AMCs are charging, you know,
21:24 a good percentage, you know, out of your kitty,
21:28 you know, on an annual basis in terms of expense ratio.
21:31 So to keep it very simply,
21:32 have one passive fund and one active fund.
21:35 I think the anxiety what, you know,
21:38 she has will be definitely reduced quite a lot.
21:41 - One for which, she wants a large and mid cap fund.
21:44 So which one should be active
21:46 and which one should be passive?
21:48 - Have one large and mid cap active fund
21:51 and one large and mid cap passive fund.
21:52 You really don't need a lot of funds in your portfolio
21:55 because, you know, large and mid caps,
21:57 the combination is a very good combination.
21:59 Even if the small cap segment is missing,
22:02 the mid cap space would give quite well returns
22:06 over a longer period of time.
22:07 So she can stick with the Roda Nifty, you know,
22:11 250 index, you know, large and mid cap index
22:13 and HDFC large and mid cap fund.
22:15 I think she'll be very well sorted.
22:17 - Okay, so no need for an either or, do an and.
22:20 Take both, Dilna.
22:21 That's at least the advice coming from Rishabh.
22:23 All right, that's all the time we have.
22:25 You know where to reach us if you want to send us a query.
22:27 Those numbers are on your screen.
22:29 We hope to hear from you and of course, see you back here
22:31 on the Mutual Fund Show, Monday to Friday
22:33 on NDTV Profit at 1.30 in the afternoon.
22:35 For now, Rishabh, Marin, thank you so much for joining us
22:38 and for viewers, thank you so much for tuning in.
22:42 But don't go anywhere, we're right back after the break.
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