Category
🗞
NewsTranscript
00:00Hello and welcome, you are watching the Mutual Funds Show and over the next 30 minutes we
00:10are going to be discussing a very interesting strategy for our viewers.
00:15What we are commonly hearing these days is concerns that India is selling off because
00:19what is happening is investments are going into China, FIs are talking about dumping
00:25India and of course moving to more attractive avenues like greater China.
00:29Well, worry not from what we understand and what we know, there are various measures or
00:35various ways in which you as a retail investor in India could actually invest and take advantage
00:42of the rally across markets like China.
00:45Well, to talk to us about that we have with us the fund manager, Niranjana Avasthi, SVP
00:52and Head Products, Marketing and Digital of Edelweiss Mutual Fund joining in and Niranjana,
00:57thank you very much.
00:58I think while I know you have been doing a great job managing that fund of yours but
01:02of course the conversations now around investing in greater China have picked up steam and
01:08that could be for good enough reason because we are seeing FIs moving towards value markets
01:14such as China and it has been sort of disappointing with the way markets have moved in the last
01:18few days.
01:20Let's put this in a perspective and let's start with the importance of geographical
01:24diversification for retail investors.
01:27Most people believe only if you are rich should you look at geographical diversification but
01:32from what I understand at any given time there is always one market that is in a bull phase
01:37and there is another one that is in a bear phase but explain this to me and tell our
01:40viewers why geographical diversification is even critical if you are a retail investor.
01:48Thanks for having me, great to be here.
01:50So definitely geographical diversification is very important for three reasons.
01:56One is you know most investors in equity, they have a home bias because they understand
02:02what's happening in the home economy, they see stuff around, they know whether it's a
02:07good or bad market, most of their monies are invested in their home country and that's
02:12not only in India, that's globally, globally that is true.
02:17But when this happens, your entire wealth, your entire portfolio is linked to what happens
02:24to your economy, your home country and as you rightly pointed out there will be times
02:31when your markets are doing well, there will be times when your market isn't doing well.
02:36That is where geographical diversification helps because when you are investing outside
02:41your home country there will be some market which will be doing well while your market
02:45isn't doing well.
02:47So countries like US, maybe China or some other countries could help you diversify that
02:54risk.
02:55The second important thing is by geographical diversification you also get to invest in
03:03dollar assets and or many other currencies that may be there out while you are investing
03:10in these countries.
03:11Generally we have seen over the last 20-30 years INR has depreciated against many major
03:19currencies, against dollar it has depreciated by almost 3-3.5% so that adds to your return
03:28over a longer period of time, that is the second benefit.
03:31And third benefit of geographical diversification is you get to invest in companies that are
03:36not present in India.
03:37There are huge corporates made outside India and they sell products in India, we are consumers
03:45of those products and you get to invest in those companies.
03:49So these are broadly three benefits of looking to invest outside India and doing some geographical
03:55diversification.
03:56You know completely taken and I want you to elaborate a little bit more on this Niranjan.
04:03You have a fund from your fund house which is a Greater China Fund, there are also other
04:09funds which are global in nature right, which give you a global diversification.
04:14Tell me why one should consider investing again because there is a homeward bias when
04:19you invest in an Indian mutual fund because clearly we live in this country.
04:24Do you still propagate that one's portfolio should have allocation to a country specific
04:29fund such as yours and why should they?
04:32Right.
04:33So when you are looking to invest outside India, there are multiple options.
04:37The most obvious option for many investors is a US equity fund and we do have a US tech
04:43fund, a US value fund also in our stable and we see people investing out there as well.
04:49However, in this market today when we are looking to invest outside India, many markets
04:54are expensive.
04:55Rightly so, because most of these markets, whether it is US or even European markets
05:03have done well recently, especially US market where tech stocks have been booming, valuation
05:09is a slight bit of concern for many investors.
05:13The other opportunity could be a fund like this, which is AWS Greater China Fund, which
05:19invest in not only Chinese market, but Chinese, the Hong Kong market and also Taiwan market.
05:26You get a broader exposure to greater China region.
05:30For three reasons one could look at this offering.
05:33One is China is trading at a very low valuation, while with the recent rally of 25-30% it is
05:40not very cheap now, but compared to many other big economies or big markets, China
05:49is still trading at a PE of around 11, which makes it quite attractive from valuation perspective.
05:56Second is China again in last two and a half year hasn't performed well and with recent
06:03measures that government has taken, whether it is on the monetary side or fiscal side
06:09in Chinese market, they have reacted positively, while these measures in itself may not be
06:15helpful for this rally to sustain over the next six months or a year or even more than
06:20that.
06:21But the expectation is that now government is looking to revive the economy.
06:25They are looking to give support that is needed to revive their economy and the equity markets,
06:32which is encouraging and which can benefit investors holding on to China investments
06:37or doing new investments in this fund with at least two to three year period.
06:45Third thing is in China there are many, many companies, big corporates like we have in
06:52US, which are doing business across the world.
06:55They are global in nature, their businesses are global in nature.
07:00And China has edge in many of sectors, whether it is EV, the penetration in EV in China is
07:06almost 30-35% when it comes to carbon neutrality, solar, China is a big player when it comes
07:14to solar panel, it has almost 80% market share in that space.
07:18So these kind of corporates are present in China, which are unique in nature and you
07:23can get exposure to these kind of businesses through this fund.
07:27So these are broadly three reasons why one could look at Greater China Fund at this point
07:31in time.
07:32Right.
07:33Niranjan, let's now talk about what investors should do, right?
07:35The ones who got into these funds a few weeks ago would be laughing their way to the bank,
07:40but looking ahead, how much of one's portfolio should be allocated to the Greater China Fund,
07:46not a global fund, but specifically a Greater China Fund?
07:49Right.
07:50So, you know, it's very difficult to give a blanket answer for this question because
07:55every individual will have his own risk appetite and asset allocation.
08:01But broadly, if someone is looking for a strategic allocation into this product, maybe
08:065% odd exposure at this point in time would make sense because it will be meaningful also
08:13to ride, you know, the potential upswing in this market and also give you some, you know,
08:20on a risk-adjusted basis, give some diversification to your portfolio.
08:25Niranjan, how does the fund operate?
08:28So does the Edelweiss Greater China Fund buy stocks in Greater China, which is China, Hong
08:35Kong and Taiwan?
08:36Or do you go out and invest in a step-down fund itself like the JP Morgan China Fund?
08:43Is that the strategy?
08:44You want to walk us through that?
08:45Yes.
08:46So it is a fund-of-fund structure within the mutual fund regulation.
08:51A fund-of-fund structure is a mutual fund which invests, in turn, invests in an underlying
08:56fund.
08:57Our fund-of-fund structure invests in JP Morgan Greater China Offshore Fund, which in turn
09:04invests in stocks which are listed in Shanghai market, Hong Kong market and the Taiwan market.
09:11So it is basically fund-of-fund investing in a fund and that fund directly investing
09:15into stocks in China market.
09:18Can you help us understand what is the cost of investing in these funds and are there
09:25any minimum tickets or minimum amounts that the fund looks at?
09:29I just want to help our viewers understand that this is not just restricted to the Ultra
09:33H&I category.
09:34Absolutely not.
09:35So mutual funds are for everyone, whether it is China fund or any other fund, whether
09:40it is domestic fund.
09:42So you can start investing with as low as Rs. 1000 SIP or Rs. 500 SIP.
09:47Lumsum starts from Rs. 5000 and you know, broadly if you see this fund invest into the
09:58Chinese, you know, Shanghai market, the Hong Kong market and Taiwan market, it gives you
10:05exposure to almost all three markets with this low ticket size.
10:09As far as costs are concerned, the costs are equal to any other equity fund that is there
10:15in the domestic market.
10:18It is capped at 2.25%.
10:20The underlying fund expense, which is around 0.75% is part of this overall expense ratio.
10:26So if you see our fact sheet, we give the total expense ratio, which also includes the
10:31underlying expense of the JP Morgan Greater China Fund, which is around 0.76%.
10:38So costs are similar to any other equity fund.
10:41Okay.
10:42So the costs are similar.
10:45What I also want to understand is how liquid are these investments?
10:48Are they as liquid as investing in a direct mutual fund?
10:52Yeah.
10:53So because it is equity and there are, you know, overseas market included while you buy
11:01and sell, the liquidity is instant like any other fund, you can give your redemption and
11:08get your money back.
11:10But instead of T plus 2, which is normal in a domestic equity fund, here the money comes
11:16in T plus 4 or T plus 5 because, you know, there are multiple markets involved.
11:22So that's broadly, but it is as liquid as any other equity mutual fund that you have
11:28in your portfolio, which is domestic oriented.
11:31Is it as tax efficient as a direct mutual fund, Niranjana, or is that something one
11:36needs to keep in mind as well?
11:38On taxation now, thanks to this recent budget, there is more clarity on the taxation of international
11:44fund of funds.
11:45After two years, the taxation is 12.5% and before two years, it is as per your tax slab.
11:53So in two years period, the taxation is at par with your domestic equity, which is also
11:5912.5%.
12:00Right.
12:01I think one thing, Niranjana, what makes it tough for a fund of fund, a global fund of
12:05fund is evaluating performance because benchmarks are so many and so scattered in that sense.
12:12Please share with the viewers what is the best way to evaluate the performance of a
12:17global FOF and also more importantly, I know past performance is not an indication of future
12:22performance, but what has been the historical performance of this fund over the last three
12:27years, one year and the last six months?
12:31Right.
12:32So on the performance, so it is difficult for a global fund of fund performance to be
12:39evaluated if it is investing in multiple funds, because multiple funds may have different
12:45strategy.
12:46Each of these funds may have different strategy.
12:48However, if you look at this fund, this invest only one single JP Morgan, Greater China Fund
12:55and this can be evaluated versus its benchmark.
12:59Having said that, over the last five years, 10 years and three years, the returns have
13:03been subdued because of Chinese market not doing well in the last two years or so.
13:11They have been in the maybe three years returns are low single digit around 4, 4.5%, the 10
13:17year returns is around 9%.
13:20Last six months or one year returns, one year returns particularly is around 28, 29%.
13:26Thanks to last two weeks rally that we have seen in the China market.
13:33Having said that low returns or low past returns makes it probably more attractive at this
13:40point in time to invest in this fund if you are genuinely investing for diversification
13:45purpose and genuinely waiting or, you know, able to wait for at least three years after
13:53investing in this.
13:54So that, you know, that makes this investment more attractive, I would say.
13:59Niranjan, because this is a fund of fund, the allocation to this fund is rupee denominated
14:06and doesn't come out of your LRS.
14:08Does that mean that there is no exposure to currency risk over here?
14:12Because the underlying still isn't in Chinese Yuan or the local currency or whichever country
14:18the fund is from.
14:20With this constant talk about the Chinese Yuan getting devalued, do you anticipate any
14:24risk around that when an investor is making an allocation to this fund?
14:29So if you see, you rightly pointed out the denomination, the fund is domiciled in Luxembourg
14:36actually in dollar terms, but it in turn invest in the Chinese market, which is in Yuan.
14:44And here for investor, he is investing, he or she is investing in INR.
14:49So actually the currency risk or currency benefit, whatever it is, whichever way the
14:54currency moves is inbuilt in the fund.
14:58Only thing is versus LRS, you don't need to transfer money outside India or in a, you
15:04know, foreign dollar denominated account and then invest.
15:09It is very seamless and simple.
15:11You just need to give a check from your Indian domestic bank account from rupee, from a rupee
15:17account and the fund, the AMC converts it into dollars and then invest in the underlying
15:23fund and the fund then, you know, on forward basis, invest in the Chinese market and which
15:31is denominated in Yuan.
15:33So for investor, in case there is an appreciation in Yuan versus INR, there will be a benefit.
15:40If, you know, it appreciates on the other side, there would be, you know, that much
15:47return would be lost.
15:48So there is still a currency play, which, you know, happens even though they are investing
15:56in INR terms.
15:57Thanks, Niranjan.
15:59This is such a timely conversation.
16:00I'm glad you could take out the time to talk to us and help our viewers understand that
16:04global diversification is not only restricted or limited to being an ultra HNI.
16:09You can start with as little as 5,000 rupees.
16:12It's a rupee denominated investment.
16:14It's tax efficient now post the recent changes in the budget and more importantly, it gives
16:19you exposure to a country that's outside your home bias.
16:23So thank you.
16:24Thank you for breaking it down and helping our viewers understand the various options
16:27and opportunities that are available to them.
16:30Well, we'll move on from a fund to fund, which is a rather complicated structure to a rather
16:35straightforward instrument.
16:37This is, of course, the Mirai Nifty Total Market Fund.
16:40Now, Siddharth Srivastava, head of ETA products and fund manager of Mirai asset joins in.
16:48Hi, Siddharth.
16:49Thank you for talking to us.
16:50Siddharth, this is an interesting one that you've launched.
16:53It's a new NFO.
16:54You want to start by talking to us about this new product?
16:58It's basically a true to label passive products.
17:02It invests as the name suggests across market caps.
17:05It invests in large cap, mid cap, small cap, as well as micro cap.
17:10So anyone who wants to take exposure in the entire equity universe, which is, let's say
17:16a 750 stock portfolio, this is running across market cap segment.
17:21I think this is a very sort of powerful option to have in someone's core portfolio.
17:28Completely take your point.
17:29I mean, I'm a big believer of ETFs and passive investing, but let's break this down for our
17:34viewers, right?
17:36It gives you the opportunity to invest across market cap.
17:38So it's market cap agnostic in many ways.
17:41How does this compare to an individual who is looking to buy a large cap ETF, a mid cap
17:46ETF and a small cap ETF?
17:48Why is this better?
17:49Well, I think this is more of a straightforward solution, a single solution.
17:53So if you look at the portfolio, it consists of all large cap stocks, all mid cap stocks,
18:00all small cap stocks, and then 250 micro cap stocks.
18:05So in a way, and the weightage will actually vary how the market is changing.
18:10For example, 10 years back, if you look at the allocation, 80% was large cap, just 12%
18:15was mid cap.
18:16And now around 71% is large cap and almost 19%, 17, 18% is mid cap, 9% is small cap and
18:25micro cap is 3%.
18:26Let's say going down the line, three years, four years down the line, micro cap and small
18:31cap becomes bigger.
18:33The fund will also represent that.
18:35So here investor does not need to rebalance his or her portfolio.
18:41The portfolio itself should shift the allocation in terms of weightage, depending on how different
18:46segments are moving.
18:47If mid cap becomes bigger, the mid cap allocation will also become bigger in this portfolio.
18:51How frequently does the fund or will the fund get rebalanced?
18:55Is it going to be event based or timeline based?
18:57No, so basically this index gets rebalanced by NSE every six months.
19:01And that's what you would follow?
19:03But in a case of an unexpected event, what happens then?
19:07Typically, any corporate action is done as an event basis.
19:11So for example, if there is a delisting or a demerger, the corporate action will obviously
19:15affect the underlying constituents.
19:17It does with all the other indexes as well.
19:20So that is typically as an event basis.
19:22Right.
19:23Also, what I want to understand from you is, of course, you've talked about how this covers
19:28large, mid and small.
19:31But I think one of the popular beliefs and understanding is that any of the ETFs capturing
19:37either the 500 or 750 stocks in your case, the major chunk of it is large cap buyers.
19:4370% of the fund exposure would be to large cap names.
19:48In that case, how is this any different from what is already available in the market?
19:51Is this a me too product is what I want to try and understand.
19:55You should look at this as a very simple product.
19:57As I mentioned that it can be a part of your core portfolio.
20:01Now, typically in this portfolio, the large cap will also evolve in terms of representation.
20:07As I mentioned, in the last 10 years, it has moved on from 82% to let's say 71%.
20:12It also consists of your mid caps, small cap, micro caps, the representation in terms of
20:18weighted changes while the number of stocks are fixed, right?
20:21As mid cap has rallied, small cap has rallied, they have become bigger in size.
20:26So their representation has also increased.
20:29So I think this can be used as a base product.
20:32And based on which a person can add an additional layer of a mid cap or a small cap allocation
20:39through an active fund or through a small cap or a mid cap passive fund, and just build
20:44on if he or she wants to, let's say, add on to a mid cap or a small cap exposure.
20:48Right.
20:49So what is the strategy growth value investing?
20:51What is the focus?
20:52It's a blend because it's a it's a total market product consists of 750 stocks.
20:57It consists of your growth stocks also as well as value stocks also.
21:01So, you know, like you said, right, this is a simple passive instrument that sort of replicates
21:06the performance of the companies or the index in that sense.
21:11What I want to understand from you is what percentage of investment portfolio should
21:15one allocate to this?
21:17I know it would differ depending on the risk profile of the investor, but somebody with
21:21an average risk profile who's willing to take equity risk, how much percent of your portfolio
21:26should one allocate to an ETF such as yours?
21:29Yeah, I think there are a plethora of options right now.
21:32So I don't know whether a particular investor has already exposure to, let's say, Nifty
21:36500 or Nifty 50.
21:37But let's say someone is entering market of fresh.
21:39I think this product can completely become a core portfolio of an investor.
21:45However, if someone is allocating, let's say, a hundred rupees to equities and equity mutual
21:50funds, this can easily have a 40 percent, 50 percent share.
21:53Because as I mentioned that this is giving you allocation to the entire market and then
21:57you can add on to it.
21:58You can add some tactical allocation, you can add some small cap or mid cap allocation
22:02based on your risk profile.
22:03Or if you have lower risk profile, you can add, let's say, a Nifty 50 allocation on top
22:07of this.
22:08You know, you mentioned how there might be lots of investors, you know, people who understand
22:15the markets, people who don't, who may already have exposure to Nifty 500 through an ETF
22:20because that's a popular investment instrument.
22:23The key difference on your product is that it adds to 150 more companies.
22:27Is that the only difference?
22:28No.
22:29Actually, if you look at the AUM right now, most of the AUM is towards Nifty 50, Sensex.
22:37Smart beta has become really popular, couple of thematic products also.
22:40Frankly, if you look at Nifty 500 products, the AUM is less than 3000 crores.
22:46If you look at total market, the AUM is even smaller.
22:49So I think there's a huge sort of room for these products to grow because, as I mentioned
22:56that, with increasing relevance of mid cap and small cap in Indian stock markets, because
23:03there are certain industries which are only represented in mid cap and small cap.
23:06Look at FinTechs, look at capital markets, etc.
23:09So now more than Nifty 50, I believe that something like a Nifty total market or a Nifty
23:14500 is more.
23:15So these are the companies that will eventually become large cap, right?
23:17Absolutely.
23:18Because it's only that much the top 50 companies can grow.
23:19There's also a big base effect, right?
23:21Absolutely.
23:22What about tracking errors?
23:23So very often you'll have individuals who say that the fund has done so and so, while
23:28the Nifty might have done a certain percentage.
23:31What is the tracking error and why is it important for one to understand the importance of this?
23:35Because then you have to answer questions after the investment has made.
23:38Absolutely.
23:40Typically in broad based products, let's say like Nifty 50, Nifty 100, Nifty 200, even
23:46Nifty 500, you won't find much of a tracking error.
23:50Typically what investor will get is index return minus the expenses which they are paying
23:56in terms of TER and some amount of tracking error which happened, but it is not huge.
24:02What we are seeing is tracking error is typically, let's say, higher for smart beta products,
24:07higher for certain, let's say, small cap products or micro cap products.
24:11But in a 500, in a total market strategy, in an Nifty 50, tracking error will be, I
24:18think, minuscule, will not be much relevant.
24:21But yeah, I think investors should look at the TER of the scheme before investing.
24:25If a TER is on the higher side, that is obviously coming out from the returns which the underlying
24:31portfolio is generating.
24:32Right.
24:33And how do ETFs compare to index funds?
24:38That's a great question.
24:39As a fund house, we have launched a lot of ETFs.
24:42This is going to be our first equity index fund, in fact.
24:46We feel that ETF is something, as DMAT accounts are growing, as…
24:52It's easy to execute.
24:53Easy to execute.
24:54For example, look at China market right now.
24:58You are seeing that it opened almost 10% down and now it has recovered, right?
25:03So it gives you entry point at levels you want, right?
25:07If market is down by 5%, you can buy at 5%.
25:10You don't have to wait for the closing NAV.
25:12You don't have to wait for the closing NAV.
25:14You can buy in one stock, two stock.
25:17There are ETFs you can get one unit at rupees 20, rupees 10, etc.
25:20And this is very liquid.
25:22This is…
25:23Actually, it depends.
25:24India liquidity is growing.
25:25There are some ETFs which are fairly liquid.
25:27There are some ETFs…
25:28What are you anticipating with this product launch?
25:29Do you think the liquidity of this ETF will be quite healthy?
25:32This is an index fund, so this will not be listed on the stock exchange.
25:35So anyone who invests or who redeems will be getting the day end NAV.
25:40Okay.
25:41So all in all, an ETF versus index funds, where is the thumbs up?
25:44It totally depends on the investor.
25:46If someone is looking for SIPs, etc., not looking for, let's say, taking advantage
25:52of intraday volatility, etc., then index fund, he or she can choose, whereas if you are looking
25:57to invest at particular levels, looking to buy or sell at intraday levels, etc., then
26:02I think ETFs are the way to go.
26:04And I know there are a few peers in the industry who do have the Nifty 750.
26:09What have…
26:10I know returns are no way of… historical returns are no way of measuring future performance,
26:13but would you want to give us a sense of what sort of returns one can expect or is it just
26:18going to be Nifty returns?
26:19So I think it's better to talk in relative terms.
26:21If we look at historical performance in last five years, CAGR has been around 22.8%, last
26:27ten years around 15.8%.
26:28And it's low cost.
26:29And it is low cost.
26:30But see, this consists of mid-cap, small-cap and micro-cap.
26:35So in regime, when large-caps are doing well, it will typically underperform Nifty 50.
26:41In regime, when mid-cap, small-cap and micro-caps are doing well, it will outperform large-cap
26:46and large-plus mid-cap centric products.
26:49Recently, if you look in the longest term, this product has done well, better than the
26:54other broad market indices.
26:55Interesting.
26:56Good luck with this NFO and we'll hopefully, just very quickly for our viewers, when does
27:00the NFO close?
27:01So NFO closes on 22nd of October.
27:0422nd of October.
27:05And the minimum ticket size?
27:06It's Rs. 5,000.
27:07Rs. 5,000.
27:08So this is open to all our retail viewers who are watching the show.
27:10This is a new launch from the Powerhouse Mirai Asset Fund Managers.
27:15It's an interesting product capturing over 750 or rather 750 companies on the index.
27:20With that, completely out of time on the show.
27:22Thanks for watching.