- What are dynamic asset allocation funds?
- Current market scenario
Niraj Shah in conversation with #Moneyfront CEO Mohit Gang and Rupee with Rushabh Founder Rushabh Desai on 'The Mutual Fund Show'.
- Current market scenario
Niraj Shah in conversation with #Moneyfront CEO Mohit Gang and Rupee with Rushabh Founder Rushabh Desai on 'The Mutual Fund Show'.
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TVTranscript
00:00Hello and welcome to the Mutual Fund Show. I'm Nidhat Shah. Over the next 20-25 minutes,
00:11we'll try and do two things. One, talk about a very pertinent aspect about mutual fund
00:14investing and then try and get our experts to answer two or three of the queries as we
00:20do with every show so that you feel you're a part of the show as well. And that's the
00:24small attempt that we are trying to do here. Well, the topic today. At any point of time,
00:29viewers, you would have a plethora of options of investing in the Mutual Fund Show. Say
00:35you want to start an SIP today or you want to do a lump sum investment today. And you
00:38would ask yourself or look around and think about where is it that I should start an SIP
00:44or where is it that I should make a lump sum investment? Now, is there a right choice at
00:49all the times? I would argue yes. Now, if you're wondering that you want to start an
00:53SIP today, but you don't have an idea about where is it that you should or what are the
00:57options that you should look at, today's show, we'll talk about one such option, which
01:02might be a good fit in the current scenario. At least, I feel it might be a good fit. And
01:07I'm going to ask my experts if they believe the same about this or no. Now, because markets
01:14are trading the way they are, we are 3%, 4% off the highs, but circa new highs, because
01:20large caps are trading relatively at a safer valuation than mid caps and small caps. And
01:26because there is uncertainty around what will happen with interest rates and thereby
01:31fixed income instruments, should one look at managing the portfolio in a dynamic fashion?
01:36And therefore, would dynamic asset allocation funds, wherein the fund manager will do this
01:41job for you, be a good idea under the current scenario? Let me pose that question to both
01:47our experts today. I'm joined by Rushabh Desai, founder of Rupee with Rushabh Investment Services,
01:54and Mohit Gang, co-founder and CEO of MoneyFront. Gentlemen, both of you, thank you so much
01:59for taking the time out and joining us. And Mohit, great to have you in our studio. Rushabh,
02:03great to have you as always on the show as well.
02:07Thank you so much, Neeraj.
02:08Pleasure is entirely ours. Mohit, can I start with you? Is this a good idea to look at dynamic
02:14asset allocation funds under the current scenario? Why or why not?
02:17Okay, thank you so much, Neeraj. Always a pleasure to be on your show. Thank you. Look,
02:22to me, I think there is never a bad time for a dynamic asset allocation fund. Is this
02:26a good time? Perhaps this might be a great time to get into that category. But again,
02:31as I say, there's never a bad time because it gives you a good blend of everything, right?
02:36A mixture of equity, debt, some bit of commodities and few other assets, depending on what category
02:42or what fund house you go into, and a component of arbitrage, which plays and gives you that
02:48equity taxation. You get the best of all the worlds, right? With equity taxation, getting
02:52fantastic returns, giving a safety cushion, having a protective net in your portfolio,
02:57getting the upside from equity markets, checking into the growth rates. I think you can't ask
03:01for a better combination. And as I said, there's never a bad time for this category.
03:05Okay. Rushabh, well, Mohit kind of firsts my thought here. I would love to understand
03:11from you because this stems from a conversation that we were having yesterday as well. I presume
03:16you would second this. Neeraj, absolutely. I completely second what
03:21Mohit had to say. There is never a bad time to invest in dynamic asset allocation funds,
03:27whether it is at the peak of the market cycle, middle point or the low point. There are a
03:32few reasons why I really strongly feel dynamic asset allocation funds are today in a sweet
03:38spot. There are four particular reasons for this, Neeraj. One is, see, these funds are
03:42dynamically managed between equity and debt. So the fund manager takes real active calls
03:47when the markets are expensive, they trim down the pure equity allocation and venture
03:52more into debt. And when the markets are low, valuations are low, they venture more into
03:56equity and reduce the debt, right? Second is that if you look at the market scenario
04:03which you correctly put it and summarize it very well, mid and small caps are trading
04:07at a premium, large caps are trading at its historical average. So it's quite reasonable
04:12compared to mid and small caps. See, today equity markets are also volatile, which is
04:16positive for the arbitrage spreads. And we are uncertain about the rate cuts. So currently
04:22as we speak, you know, debt yields are trading at its peak range. Now, if you see the portfolio
04:29of these dynamic asset allocation funds, I took out some very interesting data at the
04:35category average level. It's quite balanced between equity, debt and arbitrage at this
04:40point of time. See, the average pure equity allocation in the dynamic asset allocation
04:46category stands at around 53% and the debt and arbitrage allocation stands at around
04:5147%. Second is that, you know, because large caps are reasonably valued at this point of
04:58time, the equity portfolio in these dynamic asset allocation funds, you know, stand particularly
05:06at 75% large caps. So these are very well positioned to take the benefit of the large
05:12cap rally when it happens over the next two to three years. And if you see the debt yield
05:18and the debt average maturity, average maturity of these portfolios stand at around five years
05:23and the yield to maturity at the gross level stands at 7.5%. So I feel a combination of
05:29these factors looking at the portfolio of these funds over the next three to four years,
05:34I really feel tremendous upside opportunity can be made, good amount of double digit returns
05:40I feel can be made from dynamic asset allocation category.
05:44Okay, so let's try and simplify this. Mohit, for somebody who is wanting to know that they've
05:50heard you and they know that there's a good category, what kind of funds fall within dynamic
05:55asset allocation fund? Would a fund be called, for example, ICICI Prudential Dynamic Asset
06:00Allocation or HDFC Dynamic Asset Allocation? Or is it something else? And would you recommend
06:06an SIP in this category? Would you recommend an STP if somebody has a lump sum or would
06:11you recommend a lump sum investment as well?
06:13Got it. So Neeraj, I think first things first, I think Roshabh has brilliantly explained
06:17what it entails. Just adding one more point to it. Look for investors who can't themselves
06:24track the market very dynamically and can't create a balanced portfolio or can't decide
06:29what mix of equity and debt to have at what particular market cycle in their portfolios.
06:34This is a brilliant category to have because it auto-fits, it auto-tunes your portfolio
06:39under all market cycles. The fund manager himself is dynamically switching between equity
06:44and debt and he's increasing the equity composition as market, increasing the equity composition
06:49and markets get attractive and reducing it when markets get extremely riskier or pricey
06:54or whatever you might call it, right? So for those category of investors, it's a brilliant
06:58call. Whether to go SIP or lump sum, look, honestly, it's a case of a very unique condition
07:03to every investor. If you have regular flows, if you are a salaried investor, then perhaps
07:08SIP is the best choice for you to go. But if you are sitting on a lump sum, which is
07:12by virtue of your year-end bonus or by whatever reasons, then I would say stagger it out for
07:16not a very long period, but let's say three to six months, just take an entry for a couple
07:21of reasons. One, A, debt yields have been fairly elevated for some time now. They eased
07:27off to around 6.9%, the 10-year in India, but went on to around 7.1, 7.2 now. US is
07:33already at a very high 10-year yield again, right? And the rate cycle, which was looking
07:39imminent for a reduction, is perhaps a little delayed now, right? So my sense is spreading
07:44those funds for next three, four months might mean a good entry point in the debt cycle
07:48also if we were to see the yields again shooting back a little. And second, equity, because
07:52we think there is some amount of volatility owing to elections and other things, maybe
07:56a two, three-month kind of a staggering, but not for someone who can have the appetite
08:02for risk and have the appetite for volatility, perhaps go out, all out and do a lump sum.
08:06But for, I think, a normal retail investor who is a little fearful, wants to take a calculated
08:11call, a three to six months kind of an STP is a better choice to take into this.
08:17What kind of funds come into this category? Most of your balanced advantage funds, like
08:21your Pru, ICICI balanced advantage fund, your HDFC balanced advantage fund, which is one
08:25of the biggest AEM fund in this category, almost 80,000 crores of AEM under that, your
08:30Edelweiss balanced advantage funds, right? So typically you will find the name balanced
08:34advantage. You might also find the name of asset allocation funds. So you will have those
08:39kind of asset allocation funds also in this. Again, you will have to go into the underlying
08:44tone and theme and try and understand what the fund actually does. There are some funds
08:49which actually work on the fundamentals of the market and change equity debt allocation
08:52depending on the P ratios and PB ratios of the market. And there are some funds like
08:56Edelweiss who more track the technicals of the market and the momentum of the market
09:01and then change the composition of the equity and debt. So what is the underlying tone and
09:05methodology of each fund? Perhaps an investor will have to be a little more cognizant and
09:09maybe take help of his advisor in selecting it out. But again, that's the broader category.
09:14But I think it's an all season category.
09:16By the way, viewers, before we take the break, we will make you hear the Home Minister talk
09:23about market volatility as well, since we're talking about taking advantage of the volatility.
09:27But there is still some time for the break. I just want to wrap up this topic first. And
09:32Rushabh, I'll come to you therefore. How do you look at investing in this space? As Mohit
09:41was saying, there could be various nomenclatures and each fund maybe approaches this shifting
09:48or being dynamic in this quite differently. So where is it that you find a favor within
09:54this landscape of this dynamic asset allocation funds?
09:58Neeraj, Mohit brilliantly explained the dynamics of this particular category. There are two
10:06types of funds, which Mohit also explained. One is the pro cyclical and one is counter
10:11cyclical. Pro cyclical is usually follows the technicalities, you know, the momentum
10:15strategy. It's a little more aggressive towards equity and counter cyclical is more like to
10:20do with the valuation gain, PPP ratio and stuff like that. So I think a combination
10:25of having a pro cyclical and counter cyclical fund, to give you an example, see the Edelweiss
10:29BAF product is a pro cyclical product. It's a little more aggressive towards equity. And
10:34the ICICI Prudential balance advantage fund is the counter cyclical product. So having
10:39a pro and a counter cyclical product, you know, works best as Mohit correctly pointed
10:45out that, you know, spreading out investments over the next two, three months would be ideal.
10:50I wouldn't go beyond two to three months because we don't know, you know, because now the market
10:55cycles have also shortened. So the volatility also has shortened. So take advantage, you
11:00know, if the markets fall by a percent or so, you know, you might want to invest a good
11:05amount of lump sum money during that time, but not more than two to three months spreading
11:09out is that this is something what I would, you know, give my opinion on. And, you know,
11:16last but not the least, you know, both SIP and lump sum methodology works great. This
11:21is more of a category for moderate risk takers, you know, who don't want to venture purely
11:27into equity and don't want to take that pure equity risk. This is more of for a moderate
11:32risk taker. But if someone has a longer time horizon, say like seven, ten years, you know,
11:38doing an SIP, if someone can take risk and doing an SIP in pure equity products would
11:43work best to give you better risk adjusted return. But someone who cannot stomach that
11:48much of volatility or probably you as a medium term time horizon, you know, this category
11:52fits best for them. So, Rushabh, one, what are the kind of returns to be anticipated
11:58for a moderate risk investor if she or he invests in this category today? And what are
12:04the recommendations? They will not be exhaustive recommendations. You could choose two out
12:08of the many that you like, but share a couple of names. Aniraj, you know, I feel the minimum
12:14time horizon should be five years, anywhere between four to five years for this product
12:18because, you know, over a longer period of time, since these products inception on a
12:25five year daily rolling basis, you know, these products have given no negative returns at
12:30all. So I think the ideal time horizon would be four to five years. There are two products
12:35which fit in my mind, come in my mind is one is Edelweiss Balanced Advantage Fund and second
12:40is the ICSA Prudential Balanced Advantage Fund. I think dividing it into these two products
12:46would be a great portfolio. Okay, Mohit, from your end. Look, again, I think here investor
12:54will have to get into a discretion of figuring out what kind of an equity composition and
12:58what is the aggression level of the funds do they want. If you want a highly aggressive
13:02fund with a slightly higher equity composition, then HDFC Balanced Advantage is your choice.
13:07If they typically do this, you say. They are typically on the higher side of the equity
13:11composition. If you want a very, very safe, conservative, long lasting team, right, then
13:17Proo ICSA Balanced Advantage is the choice for you. I think S. Narain has been brilliant
13:21in the way he's been managing and he's very vocal about the way he's been managing this
13:25fund. Right. And if you want a bit of technicality involved, chasing some bit of momentum in
13:30the market and then deciding on equity debt allocations, which perhaps works very well
13:34in these kind of markets, then Edelweiss Balanced Advantage should be your choice. Okay, interesting
13:40viewers. I mean, if I was an investor, I think I got the complete lowdown of this
13:44space, why I should or should not invest depending on the kind of investor that I am and what
13:49are the choices out there amongst the many. But I urge you, please do your own research
13:54as well. Consult your financial advisor if you have one about this category, but definitely
13:59ask your financial advisor why you should not be investing in this category at the current
14:04point of time. Both are experts believe it's an evergreen category and that the current
14:08circumstances might be one that you should definitely explore at least if not investing.
14:14I hope this conversation helped you. Now, we'll of course slip into a break. On the
14:18other side, we'll try and take some of the queries that our viewers send us. But we were
14:22talking about volatility, right? And the current ongoing volatility in the market, according
14:27to Home Minister Amit Shah, is not a sign of or a signal of BJP's weakness and the markets
14:34according to him will surge come June 4th in an exclusive conversation with NDTV's Vikas
14:41Bhadoria. Listen in.
14:4316 times, a bigger stock market has invested in it. It should not be linked to elections.
14:50Anyway, because of the rumours, this might have happened. So, buy it before June 6th.
14:58Buy it before June 4th. It will suit up.
15:04So, will it break the old record again this time? Will it go beyond Rs. 1 lakh?
15:07What will it do? I can't comment on the stock market. But normally, when a stable government
15:13comes, the stock market increases. That's why I'm saying that it's going to go beyond Rs.
15:18400. Modi ji's stable government is coming. So, definitely the market will surge.
15:23Now, as promised, viewers, try and take some queries. They might be synonymous in some
15:27sense. But to each individual person, the query holds significant value. So, we'll try
15:31and ask our experts about these. The first one comes in from Amit Sharma. Now, Amit is
15:37aged 41 years. Amit's goal is to create a corpus of Rs. 1 crore. Maybe we have the timeline.
15:44We'll get to that in a moment. His query is that he has SIPs in seven funds and can additionally
15:51divide and invest Rs. 12,000 crores in those. Can Amit achieve his target through these
15:58funds or does he need to make changes? Now, Rs. 12,000, excuse me. That was the thing.
16:04So, he wants to invest Rs. 12,000 in them. And he wants to invest whether he should make
16:10changes in these funds or not. So, the current SIPs are in Axis Blue Chip Fund, Rs. 2,500.
16:17HDFC Retirement Fund, about Rs. 4,000. HDFC Top 100, Rs. 2,500. So on, so forth. The numbers
16:23are there on your screen. Axis Blue Chip, about Rs. 4,000. And then the other three,
16:27which is ICICI APRU, ICICI APRU Large and Mid Cap, as well as Nippon India Growth Fund
16:32in these numbers. Now, Mohit, can I start with you? Have you had a chance to look at
16:39this query and what would you advise Amit? Yeah. So, look, I think Amit is fairly well
16:43set with his current SIPs of Rs. 21,000. He will achieve his goal of Rs. 1 crore by
16:48his retirement age, which is 16. So, he has 19 years to go. My sense is, A, Amit, you
16:52need to up your goal out there. I think the retirement corpus could be a little higher.
16:56So, up your goal with additional Rs. 12,000 of SIP, which you are planning to do, you
17:00will achieve much, much more. Right. And if you continue to increase your SIPs, then all
17:04the more better. In terms of fund selection, look, if I were to start a portfolio today,
17:08I will perhaps not start with what Amit has been doing. But I am not a big believer of
17:12twisting and turning the portfolios. There is nothing wrong in the fund selections,
17:16which he has. But because he is at 41 years, he has 19 years to go. Perhaps he can increase
17:21the risk level in his portfolio and include one more mid-cap fund and a small-cap fund
17:25in the portfolio. He can go with an Edelweiss mid-cap fund, a Proo ICSS small-cap fund for
17:30his new SIPs, which he wants to do. Right. Otherwise, I think broadly the funds are good.
17:35The track records are great. But as I said, if I were to start the portfolio today, perhaps
17:39I will not have this composition. And if at all, he can have one passive allocation
17:44also. These are all active strategies in his portfolio. He can either go for a Momentum
17:4830 index fund or a plain simple Proo ICSS Nifty 50 index fund. Quick question. He has
17:53got seven funds. You are recommending adding three more or swapping out of some of these,
17:58looking at his age and getting into the other three? So I am not recommending coming out
18:04of any of these existing funds. But he can stop SIPs into few of the funds. So maybe
18:10perhaps he can stop his SIP into a large and mid-cap fund, which he holds in his portfolio.
18:16And he can start SIPs into a couple of more funds. His portfolio is a little tilted towards
18:21large-cap. Because he has 19 years, he can go more towards mid and small-cap. So that
18:25is what I think he needs to do. And because he is also wanting to put in additional 12,000.
18:29So that is where if he is doing some additional allocation, maybe adding one or two more schemes
18:33will not harm him a lot. Viewers, I will ask Rushabh to give us a view on this query
18:38as well. Because this is a query that could be applicable to many people. It is very similar
18:42and synonymous for a lot of people. Rushabh, do you have some thoughts on this? Your thoughts
18:46could be different from what Mohit has said, of course. You know what Mohit had to say
18:51particularly about his retirement. I think he is very well sorted in terms of the amount.
18:55He can definitely increase the SIP amount as and when his annual salary increases. Overall,
19:01he is going to achieve a crore in 12 years. But since he has a good amount of more years
19:07towards his retirement, he can definitely look at increasing more, taking more risk.
19:11His portfolio is more inclined towards large-cap and he has quite a lot of funds in the same
19:17AMC. This is where I would little bit differ with Mohit that having multiple funds in the
19:23same AMC could be a concentration risk towards the style, towards similar stocks. If an entire
19:31AMC underperforms, the entire portfolio goes into the underperformance risk at the same time.
19:37I think diversifying across different styles is very important and also diversifying across
19:43different AMCs is also very important. HDFC and ICICI are both great AMCs, but I would
19:50suggest trimming down little more funds and having a maximum of 5 to 6 funds in the overall
19:56portfolio over different styles and across different AMCs would be ideal, would be better
20:02in terms of risk mitigation.
20:04I hope this gives you some answers to your query and I hope this helps you in a meaningful way.
20:14Very quickly, let's take one more query because we have time for maybe one more.
20:18This one comes in from Shyam who is age 20. I'm glad you're thinking of starting off the investing
20:24lesson so early in your life cycle. The goal is a small corpus actually, 1.5 lakh rupee corpus.
20:30Okay, not too much. But Shyam says he wants to invest 2000 rupees per month in mutual funds
20:36for the next one and a half years. So there's a time-bound amount. Can you suggest a few funds?
20:41Rushabh, can I start with you? Will he be able to reach his goal and what funds should he choose
20:45within this limit?
20:47Neeraj, first of all, I would like to congratulate him that at such a young age, he's thinking
20:51about investments. At our 20s, probably we're not even thinking about investments.
20:57There are two, three things. He has kept a very short time horizon of one and a half years.
21:03I think if he wants to create wealth, no amount is small when you are investing in SIP route
21:11in the equity segment. But the time horizon is very small. A year and a half is absolutely
21:17very small. I would recommend him to increase his time horizon to at least seven years minimum.
21:24He has a lot of time horizon, but at least have a minimum of seven years time horizon
21:31if he wants to do an SIP methodology into equity. Now, if he just wants to stick with
21:36a year and a half, then of course, doing an SIP in debt mutual funds would be best.
21:41But if he can increase his time horizon to say like seven years or so, then he can definitely
21:46look at investing in a Motilal Oswal Nifty 500 index funds because he's just starting it.
21:52So tasting the equity segment would be much better because Nifty 500 will give a good flavor
21:58of around 75% in equity, 15% in mid caps and around 10% in small caps.
22:04Got it. Thanks Rushabh. Mohit, out of time completely, but very quick advice.
22:07Not an ideal time frame for equities. Need to have at least five years to go with that.
22:12But great thing that he's wanting to start. 1.5 years, he won't be able to make that kind of
22:17corpus which he's looking for. Either increase the amount, but the better thing is to increase
22:20the time frame. He has time in his hands. Need not come out of equities in 1.5 years.
22:25Not at all. I think that's a fair way to get this approach as well.
22:29I hope this helps you, Shyam, in some fashion. But Rushabh, Mohit, both of you,
22:33thank you so much for joining on the show today and giving us your thoughts.
22:36Really appreciate the time. Mohit, thanks for joining in the studio again.
22:38And viewers, thanks for tuning in to this leg of The Mutual Fund Show.
22:59Thank you.