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00:00 [MUSIC PLAYING]
00:08 Hi, thanks so much for joining in.
00:09 You're watching NDTV Profit.
00:11 My name is Alex Mathew, and this is the Mutual Fund Show.
00:14 Like the name suggests, this show
00:15 gets you actionable insights so that you
00:17 can make your investments in mutual funds with confidence.
00:20 Now, over the past three to five years in particular,
00:24 a lot of investors have benefited
00:27 from investing in mutual funds.
00:29 The returns on an annual basis, and particularly
00:32 over the last year and a half to two years,
00:34 have been phenomenal.
00:36 And if you bought at certain junctures,
00:39 say, immediately after the COVID-19 pandemic crash,
00:43 you've probably seen stellar returns in your portfolio.
00:47 The question is, will you always have the opportunity
00:50 to time the market?
00:52 And has timing the market actually worked?
00:57 Or is it time in the market that is more beneficial?
01:01 To talk about this and to talk about specifically
01:03 what your approach should be in actively managed mutual funds,
01:07 I'm joined by Kaustubh Belapurkar,
01:09 who is the Director of Fund Research at Morningstar India.
01:13 Kaustubh, thank you so much for taking the time.
01:15 I think the first thing that people will ask you
01:18 is, should I buy at this point or should I not?
01:21 And that is irrespective of whether you're
01:23 talking about direct equity or mutual funds that
01:27 invest in equity.
01:28 But is there a good time to buy?
01:33 Hi, Alex.
01:34 Thanks for having me on the show.
01:35 And I think it's a very interesting conversation
01:38 and sort of an evergreen conversation
01:40 when we think about investing.
01:41 So like you rightly said, should you be timing the market?
01:44 Or is time in the market more important?
01:46 And I think, as the old cliche goes,
01:48 it's more important to spend time in the market
01:51 rather than trying to time the market.
01:53 And I think it holds true.
01:55 So I think from an investor's perspective,
01:56 if you're sitting today, you're probably not invested,
01:59 want to start your investing journey,
02:01 probably worried that, hey, markets obviously
02:04 run up significantly.
02:06 As long as you have the right investing time
02:09 horizon for a volatile asset class like equities, which
02:12 is at least five to seven, if not 10 years, start investing.
02:16 And start investing, obviously, regularly rather than
02:18 a one-time investment.
02:19 So that's kind of the broad-based sort of knowledge
02:24 or logic that holds true at any point of time
02:26 when you think about equity investing.
02:28 But the argument-- but Kaustubh, the argument
02:31 that a few people will have, and particularly people
02:33 that might have been spoiled by the crash after COVID-19,
02:38 is that it was a screaming buy.
02:40 Everybody was saying, look, you need to buy.
02:42 And so when people bought, and the experience
02:45 that they had after that maybe has spoiled them.
02:49 But it's certainly experience that
02:52 is telling you that if you do manage to time the market,
02:55 the rewards can be absolutely fantastic.
03:00 Yeah, absolutely.
03:01 So that's true.
03:02 I mean, there's always great pleasure
03:05 in looking at what's happened in the past
03:07 and believing that you could time the market.
03:10 But the biggest challenge-- and let me quickly talk about
03:13 a study that we do, and we published one late last year.
03:18 And I think it's, again, evergreen sort of learnings.
03:21 Well, what we did was we looked at a 10-year time period.
03:25 And we did this for both the index, the broader indices.
03:29 It could be a large cap, mid caps.
03:31 And we compared that versus cash.
03:33 And we also did the same study for actively managed funds
03:37 versus their benchmarks.
03:38 Let me talk about just the broader market and versus cash,
03:41 what were the findings.
03:42 So we broke it down into a monthly return time series.
03:45 So 10 years, 120 months.
03:47 What we did was we put that in a pecking order
03:49 of the best months at the top and the worst
03:52 months at the bottom.
03:54 What we noticed was that if you were not
03:57 invested in the market for 12 good months of performance
04:01 versus cash, you would have actually not
04:03 even beaten cash returns.
04:04 And those 10, 12 months or 10% of the time period
04:08 can come at any point of time.
04:09 So like you said, people who got in post the COVID crash,
04:13 well, great, you got lucky at that point.
04:15 But can you do that repeatably or predict
04:18 market rises and falls?
04:20 I don't think any money manager can do it,
04:21 let alone a retail investor on the street.
04:24 So I think the point is, because such a small portion of--
04:28 you can do monthly, weekly, daily returns,
04:30 and the results will actually be even more staggering--
04:33 is the fact that you cannot time the market.
04:36 You can't predict the rise and fall of a market.
04:38 Rather, what you need to do is continuously look
04:41 to invest in the markets.
04:42 And when the market does reward you,
04:44 you're already invested, rather than trying
04:46 to do revenue mirror investing or knee-jerk investing.
04:49 I think that's the discipline that investors
04:50 need to think about.
04:51 And the study really elaborates on that point
04:54 that it's futile trying to time the market.
04:57 Just stay invested.
04:58 As long as you have the right investment time horizon,
05:00 you will make money.
05:02 Or there's a greater probability of you making
05:04 reasonable returns in the market.
05:05 I found it interesting that this is not just
05:07 an India phenomenon, Kausal, because I
05:09 was looking at that report that you sent across,
05:11 and you said that if I'm not mistaken,
05:15 several, maybe half a century, data from the US
05:19 seems to suggest that that same 5% time of outperformance
05:25 for large caps in the US holds true.
05:28 So that itself is a message to investors
05:32 that perhaps patience is the way to go?
05:36 Absolutely.
05:37 So I think it's--
05:38 and people-- these public studies
05:40 have been done, like you said, in the US
05:42 and other parts of the globe.
05:43 And I think the underpinning message of the logic
05:46 is the same, that the returns will always
05:49 come in spurts for asset class like equities.
05:52 And if you're not invested, you're
05:54 not going to enjoy the journey.
05:55 And I think that's where many times investors
05:57 who are waiting on the sidelines,
06:00 waiting for a correction, and they
06:02 see the market continue to run up,
06:03 probably feel like they missed the bus.
06:06 My advice would be that take the plunge.
06:08 Take it systematically.
06:10 Don't wait for corrections, because you never
06:12 know if they'll come.
06:13 And when they come, no one can predict.
06:16 So I think that's the underpinning philosophy when
06:19 it comes to equity investing.
06:21 So you can't time the market, but in certain situations--
06:26 and we have spoken about this aspect as well--
06:28 where people have, in several occasions,
06:32 based on either advice or based on their own research,
06:35 have identified certain fund managers based
06:38 on their approach and based on performance, of course.
06:42 But there is an underperformance.
06:43 And there is a protracted underperformance
06:45 in certain situations because of the approach
06:48 and because of how the underlying markets are
06:50 performing.
06:51 At what point do you pull the plug?
06:52 Because sometimes you need to do that.
06:55 And would that be timing the market at that point?
07:00 Sure.
07:00 Again, I think a great question, Alex,
07:02 because I think this is a very important thing
07:04 to talk about.
07:05 So what we've also seen-- so we spoke about the broader market.
07:08 When you actually drill it down to actively managed funds,
07:11 what you would see is number shrinks even more.
07:13 Now, obviously, the comparison is the benchmark.
07:16 So if you're looking at large caps,
07:17 you typically look at your top 100 index.
07:20 Now, what you've seen is only five months out of those 120,
07:25 on an average, account for the entire outperformance
07:27 of the actively managed, say, large cap or flexi-cap strategy
07:33 versus the benchmark.
07:35 Now, that is a staggering number because if you were not
07:38 invested in that particular month for just that five month
07:41 period, you would have not beaten the benchmark.
07:44 And then the argument, all active versus passive,
07:47 that's obviously a debate for another day.
07:50 But the whole point being that it is extremely hard to--
07:55 even if you've picked the right manager,
07:57 you need to be patient.
07:58 Because if you just look at history back there,
08:02 if you were invested in a value-biased fund--
08:04 and we know value went through a significant pain
08:06 in the years of '18, '19, first half of '20--
08:09 a lot of investors actually pulled out money
08:11 from those funds.
08:13 And values rallied post that, but the investors
08:16 who pulled out missed that.
08:17 So the good months, as we call it,
08:18 the good months of performance came
08:20 after a significant amount of money and moved out.
08:22 So investors missed that bus.
08:24 Exactly the opposite happened with growth-style funds.
08:27 '18, '19, '20 were great years for growth-style funds.
08:30 And money piled in after '20 into these funds.
08:33 And these funds started underperforming.
08:35 So the good months of performance had already gone.
08:38 Now, obviously, they'll come back as the cycle--
08:41 as in when it turns back to growth.
08:43 But the point is, for an investor,
08:45 it's very hard to call when the cycle is going to turn.
08:48 So what you need to do is, as long as you can identify
08:50 managers with a particular style or a market capitalization
08:53 bias and stay invested--
08:56 so you need to have that focus that, look, I've bought this.
08:59 I know that the fund can underperform over the short term.
09:01 As long as the underperformance is explainable--
09:03 Costume.
09:04 --because of style, I'll stay invested.
09:05 Right.
09:06 [MUSIC PLAYING]
09:09 (music)