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00:00Hello and welcome to the Mutual Fund show on NDTV Profit. I am Neeraj Shah. We are going
00:14to be talking about two key things and I think the first one is a rarity because while ETF
00:20investing is picked up and we are going to be talking about that with our guest today,
00:24leverage ETFs haven't. So, we kind of discuss about both these aspects, how to use ETFs
00:28to the maximum possible advantage and why is it that leverage ETFs are not there. Is
00:33it only regulatory or there are other reasons too. That is something that we will pick up
00:39with Chintan Haria, Principal Investment Strategy at ICICI Prudential AMC. We will of course
00:45keep Chintan for the full show and get in an advisor as well to try and talk about this
00:50plethora of money that is going into thematic funds. As Alex, my colleague tells me, nearly
00:5850,000 crores of investment money or investor money has gone into thematic NFOs thus far
01:07in 2024. Chintan, that is a large number but I am going to come to that in the second part
01:13of the show. But thank you so much for joining in. You look at passives very, very closely
01:19Chintan amongst other things. I would love to understand from you, do you think that
01:24going ahead ETF and passive investing will only pick up steam even in an active market
01:32like India? Why or why not? Yes, so having managed active funds then launching
01:39a plethora of passive funds as you mentioned and having the entire bouquet, it's been a
01:45long journey as such and I completely agree with you that there is going to be a long road ahead
01:50for ETFs in India and I think the number of discussions across India that I do, more and
01:55more queries do come even in a small, not small, but even in a city like Patna which I went last
02:00to last week. I did get asked that what is the reason why so many index funds are getting launched
02:05and so many people are getting interested in it. I think ETFs, index funds with the kind of
02:11smart beta strategies and the sectoral thematic strategies which are being launched
02:16and with more and more family offices also coming into play, I think it's essentially
02:21supply creating its own demand and then of course now with India becoming a financialization
02:27behemoth so to say, people are wanting different products and ETFs and index funds are here to
02:33stay and I think much like how in the West they've grown meaningfully in India, along with active
02:38funds, ETFs and index funds will also grow and so will all other forms of financial investment.
02:44Chintan, if you were designing a mutual fund portfolio for yourself let's say,
02:54let's assume with an example that the person's age is 30, average risk appetite, average earning
02:59capability and average time horizon standards let's say, what's the proportion of passive funds
03:07as well as ETFs for example that you believe should be there in a portfolio?
03:13I think given the variety of passive funds which are available now, a good combination would be in
03:18the range of 75 active and 25 passive because in passives you tend to get a lot of smart beta
03:25options as well as of course gold and silver as well. So active 75, passive 25 and within passives
03:32today a lot of scope within sectors, themes and smart beta and that list thankfully is only
03:39increasing in terms of the options which investors have. So I truly believe 75 active and 25 passive
03:46would work well for investors to begin with and of course under the guidance of their advisors and
03:53going ahead it can tilt towards 50-50 as well but that all depends on
03:58how the Indian market goes and how the active fund managers are able to perform plus how well
04:03the distributors are able to understand the passive space because today the understanding
04:08of passive space actually is not very strong. So there were a few fund houses offering it,
04:12now the number of fund houses offering it is increasing and there were few distributors or
04:17advisors speaking about it, now that is also increasing. So I think with more knowledge
04:22will be more penetration for the passives. Got it. The problem though Chintan is that
04:28with the number of funds increasing or number of options increasing becomes even more confusing
04:33for an average Joe to try and understand what fund should be there. So I'm just trying to think,
04:37let's say if you are designing for yourself, what is the, in that 25% of the passive side which it
04:43may include all kinds of thematics or ETS what have you, what would be the top two or three
04:49passive or ETF investments that you would have? Clearly the broad market which is a 500 stock
04:56which you otherwise wouldn't get in an active fund or any other fund. So the 500 stock portfolio
05:02which you have is a brilliant passive index fund or ETF to buy for the long term. I think endorsed
05:08by the Oracle of Omaha as well and it's something which you would not get in the active side. Plus
05:16of course silver as a commodity is something which has a deficit for last four years and can
05:22potentially add to. So silver may be not a structural long-term bit like the 500 stock
05:29universe. So 500 stock universe as ETFs and silver are the two which come on top of the mind and in
05:34the smart beta space a combination of alpha and momentum which is the alpha level 30, that index
05:41is something which I would add to the portfolio. So keeping it simple, the full broad market index,
05:47a smart beta product like Alpha Low Wall which has alpha and low wall, there is a combination
05:52of momentum and low wall together and silver of course. Gold I would believe anyways is a part of
05:58investors portfolio but if not then gold and silver ETFs along with the 500 stock universe
06:04and Alpha Low Wall are the four that come on top of my mind right now. Got it, okay. Now the other
06:11question that I have in mind is and something that my producer Anas had a thought for which
06:16is why I wanted to ask this to you. Leverage ETFs Chintan are reasonably popular
06:25in select markets. In India maybe due to regulatory reasons as well they haven't quite taken off.
06:30What's the case for such a product in the Indian landscape? So globally also if you look at it
06:38it is about a 100 billion dollar industry in the universe and leverage out of probably 15 to 18
06:47trillion dollar of active funds or active plus passive funds which are managed outside. So it's
06:52a very miniscule portion globally despite it having its own advantages. So I think if you look
07:00at it 2006 was where the first inverse ETF was launched in US and today there are many products
07:06but it's still a very small proportion. 100 billion dollars is less than probably 0.1 percent
07:11of the global assets which are in long equity. So globally I think pension fund managers or
07:16investors and distributors and allocators believe in diversifying risks through different mediums
07:21but not playing the short side because playing the short side has been probably a little bit
07:27more risky for most times in the last 15 years. Whenever you've gone short you may have gone
07:32three four times but you got slaughtered the other time. So hence probably inverse is not picked up
07:37globally as well it's just less than 100 billion dollars of AUM assessed essentially. In India of
07:42course there is a talk of there is possibility of a launch of inverse ETFs with the discussion
07:49papers which have been recently launched and I think that would be something which can add
07:54value towards the investors who want to diversify their existing long portfolio by having something
07:59which will allow them on the short side as well. It's something which is so nascent in the globe as
08:04well. So in India also we will eventually take baby steps once the regulator comes out with the
08:09right guidelines and if the consultation papers etc the feedback that they get but I don't think
08:14there is an immediate requirement which is very big from a India standpoint but more than welcome
08:20if there's a possibility for investors to participate in. Got it okay so you believe right
08:26now the case in India is not that large any which ways if it were to come in and let's assume the
08:31option was there Chintan would you use leverage ETFs or because it's a risky proposition
08:40you don't use ETFs and mutual funds for the risk that you can do equities or leverage trading yourself?
08:48So of course there are two ways to look at it one is pure simple inverse wherein there is
08:54the one is to one correlation that if the benchmark index goes up to that extent you come
09:00down in the inverse and then there are leveraged which is 2x and 3x which obviously are arguably
09:05are more riskier because if the index goes up two percent you tend to go down six percent and
09:12compound it every day it can actually lead to a significant diversion and many of the ETFs globally
09:20have shown that inverse leveraged ETFs which are 2x and 3x can be extremely volatile and probably
09:26not the ballet of every investor so I would say the simple inverse ETF to begin with that one
09:32broad market indices is what we should start with eventually and then as our investors and our
09:39advisors get more savvy in terms of the short side then maybe the leverage can take place
09:45otherwise a simple inverse is something which we should look at in the first place.
09:48Okay okay fair call well so that's about ETFs now the big elephant in the room you have to
09:55admit and I welcome in on the show Karthik Shah founder of MMI Investments as well
10:00to discuss along with Chintan the big elephant in the room Karthik thanks for joining on the
10:05show as well I really appreciate you taking the time out and being with us and
10:10viewers the big elephant in the room is the quantum of money investor money that is going
10:14into thematics I'll repeat this today with both our experts but my learning of the last
10:22so many months and years of doing this show is that if you are choosing thematic funds or a you
10:28know whether NFO or otherwise we're choosing thematic funds they should be a part of your
10:33satellite portfolio not the quote portfolio and if you're a risk averse investors then maybe
10:37shouldn't be a part of your portfolio either so let's try and talk about the how's the why
10:44and the what ahead for thematic funds because as Chintan Hariya very rightly said the good part
10:50also is that the number of options available in this bucket are only widening and therefore if
10:56somebody is wanting to choose thematic funds then that quantum of options available are a lot more
11:02than what they were some passive and some active Karthik I'll start off with you on this
11:08thematic funds you would agree that the quantum of options available now are a lot more than what
11:13they were maybe a couple of years ago or five years ago so just we'll take you back to 2017
11:19that is when actually SEBI just changed the whole mandate so AMCs were supposed to get only one fund
11:26per category except for FOFs index funds and thematic and sector funds so because the AMCs
11:33and the mandate to launch as many NFOs as they can so we are seeing a plethora of NFOs post 2017-2018
11:40last I have seen the count is around 170 or funds and just August 24 figures net inflow
11:47equities around 38,000 crores 18,000 crores are thematic and sector funds so this is
11:55because of the mandate of SEBI also for the viewers if you are a thematic or a sector fund
12:01then 80% of the money is supposed to be invested in that particular sector or the theme sector
12:07fund by name itself is a narrower version you can only invest let's say in a IT sector or a banking
12:15sector theme is more broad based and in theme let's say if you have an infrastructure theme
12:20you can have metals you can have commodities you can have oil and gas you can also have banks
12:25because banks are also seen as a part of the infrastructure these is as you rightly said it
12:29should be a part of the satellite portfolio the core portfolio still should be of the flexi caps
12:34and the multi caps and the mid caps and the small caps and the index funds someone who can time the
12:38entry and the exit sector funds are for those people thematic funds yes it's bit for the long
12:43term if you can identify a theme certain themes the future holds bright for example the manufacturing
12:48theme the investors can have a look at that okay Chintan what are your views here because as a
12:54house obviously I presume you also have come out with some thematic funds some sectoral funds as
12:59well maybe I mean in in a lot of cases I remember Naren coming and saying that right now healthcare
13:05is completely out of favor so I want to launch a healthcare fund because three years out healthcare
13:09will do very well I don't remember the exact time but I remember there's something that he had
13:12spoken to me sometime back as well so you guys are big on taking these calls on on the timing
13:19of the market as well and launching some of those funds but what's your view
13:23with regards to a sectoral funds or thematic funds yeah so time has flown so obviously the
13:29fund which you're speaking of is more than five years old the pharma is getting diagnostics so
13:34you can imagine how fast that time has flown and yes but from an investor standpoint they
13:40deserve all the choices and as was being spoken themes do provide a broader canvas within the
13:46thematic framework for the fund manager to provide the investor the chance to participate
13:50so if you look at the infrastructure theme which from 2008 was a forgotten theme till 2021
13:57if investors did invest in that team they did make a lot of money across the infrastructure theme
14:02so also in pharma which is I think in India never green team as such so our endeavor has always
14:09been to provide investors you know the first choice in the sense starting from balanced
14:15advantage fund which we still believe should be the core right so you mentioned about thematics
14:19being satellite and even mid and small cap to an extent being part of that uh let's say the
14:24satellite or the non-core so to say because you can come in and out of that but the core should
14:29be balanced advantage fund multi-asset fund that's always been our thought but in India luckily with
14:35so many sectors doing so well and so many teams doing so well with government focus or otherwise
14:41entrepreneurial skills we technology outsourcing if you see global capability centers which were
14:46not spoken of five years back today it's a 64 billion dollar industry likely to go to 100
14:51billion dollars in 2030 so India does have the ability to bring out the best in terms of sectors
14:58and if we are able to bring out those sectors from an investability standpoint for investors
15:02that's I think a win-win situation for us as manufacturers and for investors and distributors
15:06so yes I do believe there's a space for India and teams and because the cyclical nature if you
15:12actually can get the themes right you have alpha to be created there and that's where
15:18we also have fund of funds which actually invest in these themes so investors don't want to choose
15:23that we'll do the choosing for them in terms of our own thought process in those thematic fund of funds
15:28um Karthik with the with the uh with the options and and Chintam thanks for laying it out yes
15:34it probably was five years ago just that time really flies you're right now Karthik
15:39coming on this with the with the market looking a fairly polarized right in sense some themes and
15:46some sectors are really trading at astronomical valuations and some you can argue are lagging
15:52those they're not really lagging the markets large because valuations in India are expensive
15:56but because there is such a polarization could we see more and more thematic funds
16:02as somebody who wants to invest in banking and even if it's a third of the weightage does not
16:08get so many banking stocks if if the fund manager believes that the banks are cheap
16:12then therefore the fund manager will have to launch a banking thematic fund or a banking
16:16sectoral fund which I think some fund houses are doing so we'll probably see more and more
16:21of sectoral or slash thematic funds coming out what should people be careful about or what
16:27should people think about when they are investing into some of these so first of all I think
16:34investors need to be wary of the fact that are they chasing trends so let's say I did it well
16:39from 17 to 21 but didn't do well thereafter last day was PSU infrastructure engineering
16:46so are we chasing trends that is the first thing are we chasing trends or are we seeing a vision
16:51for example in a particular thing that's why we are taking that secondly when you are buying a
16:55fund you also need to see whether there is an overlap within your existing portfolio with a
17:00flexi cap or a multi-cap fund if there is a subsequent substantial portfolio overlap of
17:06over 50 percent that doesn't make sense to take that that is by seeing the underlying of the
17:09funds yeah and the thirdly me that the most important point is is the drawdown now how
17:15much people have the stomach to you know digest the drawdown if you if you see with the broader
17:20market in the last 10 years the broader market would have taken a maximum drawdown of 38 percent
17:25but these sectors have taken drawdowns of 45 47 49 percent so investors who have the stomach to
17:32digest these drawdowns should go for these themes otherwise diversified equity funds give them a
17:38proper universe and it is the fund manager in fact if the particular theme or a sector
17:42is going to do well no nothing stops the fund manager of a diversified diversified
17:47fund to go for these things yeah well because I think the the point about the drawdowns is
17:52important right because uh the index will probably give you maybe 15 20 percent drawdown
17:57broader markets maybe 25 30 percent drawdown and thematic funds could actually be much larger by
18:02the way thematic funds could also give you lesser drawdown too if you've researched it I think that
18:06is where I think the point from both our experts came in that if you can time in sometimes the
18:11entry then a well-run thematic fund or a well-run sectoral fund could actually do well but it should
18:17probably be a part of your sick of your satellite portfolio Chintan before we let you go uh from
18:23your fund house what are the latest products on the thematic side that have come out where you
18:28believe that the market is not quite uh constructive and therefore even if people are ahead of time and
18:35SIP into that could yield better results I mean because you guys typically do that when the theme
18:40of the sector is not in favor it's difficult to figure out what is not in favor currently maybe
18:43except for banks just looking at the markets the way they are you actually yeah you actually
18:48answered the question partly so of course like I mentioned uh we not only bring out the products
18:54we also bring out solutions which actually showcase our view without we having to tell
18:58our investors at all points of time and that's where the entire fund of fund suite which we have
19:03is actually to bring about what our exact views on the at different points of time because
19:09investors can actually look at those products so whatever if you look at from a thematic fund of
19:14funds since you asked we've been basically heavier on the pharma side and the it side
19:19in the last three to four months uh there and that has done well and that can change as well
19:24the thing about thematics and in an ever-changing world which is changing so fast and it can change
19:28fast in a week's time also depending on what course of action the u.s fed takes uh we do
19:34believe that investors should look at our fund of fund suite specifically which are actually
19:38showcasing that so let's say the asset allocator fund of fund would showcase what equity levels
19:43investors should have thematic fund of funds would showcase what are the themes and sectors we like
19:48and what are the percentages that an investor should allocate to and uh so on and so forth so
19:54I stick to that that investors can look at our fund of fund suite for getting the answer to your
19:57question on what do we like right now but yes uh to a very large degree most of the themes and
20:03sectors are performed except probably banking and to that extent the larger banks to provide a
20:08margin of safety because they are underwent they want to perform meaningfully I think the banking
20:13index in the last one year is up about 12 percent versus uh let's say the broader market at 28
20:18percent and some of the sectors above 50 percent right like oil and gas and power etc so banking
20:25does provide a good opportunity from that perspective because they've gone through a
20:29performance got it okay Chintan lovely having you as always thanks so much for taking the time out
20:34and being with us see you in the studio sometime so thank you all right that's the view from
20:41Chintan Haria now Karthik the debate around thematic funds could go on let's assume somebody
20:47is convinced that she wants to take a little bit of a risk and wants to go into thematic funds
20:53it's a difficult call I know but are there some thematic funds that you believe
20:57uh people can look at currently so uh as you said the thematics fund is a bit broad based
21:04than a sector so a sectoral fund as the case thematic consumption is a theme which which I
21:08feel would do well and because it will include companies of all the sectors so consumption is a
21:14theme there are many funds in consumption which tend to do well there is one uh sector which
21:22which is out of place currently because China's economy is not doing well but that is commodities
21:26and I feel that China may be a year two year down the line when it again starts doing well
21:31commodity as a cycle would do well so maybe a staggered investment by SRPs into a commodity fund
21:36would also help but that's for a high risk that is for a high risk investor somebody who can digest
21:41no gains or for a long period of time or no gains at all because who knows when China will do what
21:46it does yeah yeah so so by nature sector and thematic funds are for this seems to be a stretch
21:51of a risk yeah it is a stretch of a risk otherwise then diversified equity funds and plexi caps and
21:56multi caps are there to take care of this but other than that consumption as a theme is doing
22:01well manufacturing is a theme with China plus one you know taking a lot of leverage so I think these
22:07two themes investors can look at many funds there are many funds which the problem is uh the vintage
22:13is lesser because most of the funds are recent funds but these two themes I am bullish on very
22:18quickly there is a defense fund and there is a defense index fund as well uh between the two
22:24if somebody wants to bet on defense uh so the index fund hdfc index fund if you are talking
22:29about it's an index fund the hdfc defense fund I'm sorry I think it has stopped subscriptions
22:35because it has got so much money and doesn't have money to doesn't have opportunities to deploy so
22:40the valuations are too high so defense I would recommend to avoid recommend to avoid okay fine
22:46because it's the valuations are too high yeah fair call okay now the time for queries Karthik a lot
22:50of so so firstly thank you for giving us these insights and viewers I think the summation of his
22:56thoughts seem to be that satellite portfolio not the core portfolio flexicap funds can actually do
23:02some bit of that heavy lifting as well but if you are investing in a thematic fund please see the
23:06underlying to see the quantum of overlap between a between a normal diversified fund that you might
23:12be having versus a thematic fund that you might or a sectoral fund that you might be wanting to
23:16invest in and be prepared for drawdowns and volatility and no returns uh the sure the returns
23:22can be high but the converse could happen as well in a thematic or a sectoral fund so be mindful of
23:27that okay now a couple of queries the first query is from Shrikant age 30 years of age Karthik
23:32Shrikant says Shrikant is planning a 50,000 rupees per month sip Shrikant's goal is to buy a house
23:39worth 1.5 crores in 5 to 8 years seal retirement by 45 to 40 to 45 years of age and secure funds
23:49for the daughter's marriage too what are the what are some of the funds that he can invest in
23:56so I'll just let us take an 8 year view so if he continues with his current 50,000
24:01thing so he would reach around 80 lakhs of corpus assuming a 12 percent IRR
24:06I would request him to do a top-up of 10 percent per year by that he would reach a corpus of around
24:121 cr in 8 years now I would be assuming that he would be taking a home loan somewhere in the
24:178th year so maybe he would be paying 20 percent of that so that is 1.5 cr so 30 lakhs for that
24:23still he will be having a corpus of 70 lakhs which would be continuing with an increased allocation
24:29in sip so that would do him well for his retirement and his funds for the daughter's marriage what are
24:34the funds he should invest in well a mix of index funds a nifty 50 or a nifty 100 fund
24:43to flexi any house is fine yeah in index funds it doesn't really matter yeah there's a tracking
24:47error thing is that in flexi cap parag parik flexi cap is a good one hdfc flexi cap you can take
24:53in mid cap nippon india growth kotak emerging equities and small cap hsbc small cap nippon
25:00small cap and for some geographical diversification a sip into a nasdaq 100 or an snp 500 now he needs
25:08to check with these amcs because because of rbi restrictions on the dollar remittances many mcs
25:13have stopped taking investments but i think motila loswal snp 500 motila loswal nasdaq 100 is still
25:19open for sip subscriptions so this would do well 20 he needs to pay for the home down payment and
25:25yeah okay okay well shikant i hope you got the answer it was well defined really a bit of personal
25:32finance angle thrown in as well on the mutual fund show okay thanks for that kartik the other
25:37question is coming in from chandan pandey chandan is 28 years of age chandan says i want to invest
25:4215 000 rupees per month in a mutual fund through an sip for a period of 15 years again suggest some
25:48schemes to go with so again most of your investors seem to be very well uh worse because you know
25:53everyone is here for the long term so that is that is a good thing to see now if he continues
25:58with 15 000 sipa for around 15 years again assuming a error of 12% the corpus would be
26:04around 75 lakhs so it's a good thing now again the schemes which i suggested for shikant would
26:10do well for chandan uh chandan because uh maybe he doesn't have anything in between no house to
26:17take at least not he has mentioned here so then maybe he can increase his allocation to bit more
26:21of mid cap and bit more of small cap that is otherwise the funds remain the same what i told
26:25for shikant okay so the fund names remain the same chandan you can hear the previous answer
26:30he's given examples kartik has uh you can add increase the allocation to mid caps and small
26:34caps for a higher beta because you do not have a particular goal time bound goal in mind i think
26:39that is the rationale that kartik shah is giving us kartik just one quick question i remember you
26:43having said in the past that in no mutual fund portfolio the number of funds should be more than
26:487 8 or 10 or thereabouts is that the holy grail still yes yes yes so how many funds would should
26:52be there in a portfolio 7 to 10 is good enough is maximum yes you would rather not have 20 or 30
26:58funds no because it's too difficult to track and too much of overlap okay and so if many times you
27:06water the weeds and plug the flowers got it so at times if people have 25 30 funds they should
27:10actively look to reduce some of the holdings and swap into other schemes yes yes okay okay great
27:17kartik such a pleasure talking to you thanks so much for those such pointed answers really
27:21appreciate your time thank you thank you thank you viewers thanks for tuning into yet another episode
27:25of the mutual fund show hope you found it useful