We are seeing this drop in SIP inflows in February, but the fact is that it is still steady. It is above the 13,000 crore mark for the fifth straight month now. The question is — will it trend downwards from here considering all the volatility that surrounds us, amidst all the uncertainties that are emerging from the global financial stress, what are we expecting next?
Yes, your observation on all the points that you just mentioned are pretty bang on. But you must also note that the incremental net sales in the mutual fund industry and, of course, this includes the lump sum plus the SIPs, that number is growing over the last maybe three-four-five months and that is clearly telling you that while the recency bias is playing on the investors’ minds in terms of returns looking maybe flattish, in certain segments negative for the last 12 to 15 months, the fact remains that with every price point correction we are seeing more moneys also come into this asset class called equities. So, my sense is therefore that if one were not to get too perturbed by the near-term trend, it looks like with a correction price point you will see more money coming into the fray of equities rather than a lock, stock and barrel exit.
As much as investors are advised to stay invested, keep the SIPs going regardless of where the markets are, even if they hit a rocky terrain, I am just wondering, is it normal for people to stop their SIPs when they see asset classes out there that do better than their mutual fund portfolio? Is it normal for them to look elsewhere when you are seeing higher rewards?
That is a very natural or instinctive reaction. I will give you a classic example, I am an SIP investor and assuming I put money today and I am looking at my one-year SIP return in say Nifty, it would be flattish, maybe 1-2-3% and if the same portfolio I would have seen one year back, that return would have been maybe 7% to 8%. Likewise, if I would have put my money in say a smallcap, a fund or an index, the return today, one year SIP returns are negative, maybe 3-3.5% and exactly the same thing a year back if I would have seen for the same period it would have been close to 9%.
So, the more you are seeing these numbers, they are instinctive to react but that is not the right way to do because even today if you look at the three-year returns, has each of these categories whether it is the largecap or the midcap, has it visibly beaten inflation? The answer is yes and that includes the one year of flat or negative returns.
So, I think clearly you have to think long term. You cannot be instinctive. Do you see the value of your house today and rush to sell or buy? The answer is no whether it is bought for investment or you are staying, so why treat something just because you can see the return so regularly, why do you have a differential treatment?
In that case, what should be the ideal strategy because you do want to hedge your risk, you want to get your split between debt and equity right, especially when interest rates are rising. What is the correct way of doing it?
No, I think once you have created your own Lakshman Rekha and when I say Lakshman Rekha I am talking about your contours of asset allocation, please stick to it. Come what may, do not deviate from that. There might be some course corrections which are required. For example, if you are a 60-40 portfolio equity versus debt and because of the market movements if your equity is right now at say 58%, please go ahead and plough in that 2%, I think that is extremely important and that is responsible for more than 90% of the returns if you are able to assess your risk and create an asset allocation.
So, I think that is the message in this market and within the fixed income also if you have scanned the environment properly and we are nearing the peak of interest rates, there is a case to enhance a little bit duration into your fixed income portfolio but these are asset allocations and asset classes which will clearly coexist even in the current market ecosystem.
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