What is your advice when it comes to new entrants in the markets that have come into the equity class but have not come into the debt segment as yet. What do you believe is the USP here or what would be the advice to some of these new entrants?
Dhirendra Kumar: I have been telling the investors, but nobody has followed me. I always encourage people to start with an aggressive hybrid fund simply because most investors are getting attracted to the market just looking at the upside and they may not be ready for the intermittent big declines on an ongoing basis and this is where the funds come into play very nicely.
They will not give you the heartburn which might look imminent at any point and it will happen in the next three, four, five years, there will be at least 10 occasions when the market will fall so sharply that it will scare most of the new entrants, so start with that, else not, else, make sure that immediately after investing you are not looking at the NAVs on a day to day basis. I would also like to give you one context. If any investor has invested in a smallcap fund by way of SIP over any three- to five-year period, one has beaten fixed income by a handsome margin.
Let’s stick to very broad mega trends. Mega trend number one is SIP and I am assuming that somebody starting SIP at least has a five to seven year timeframe in mind, otherwise it is not a SIP, then it is more like a trade here or there. A genuine SIP investor can think in terms of not months and quarters, but in terms of years and has a five-year plus time horizon and if the starting point is today, should one still stick to SIP investing in equities?
Dhirendra Kumar: Absolutely, most people think that SIP is for return only. It is not that. The convenience of SIP, the cyclicality of SIP, the potential of SIP does not really scare you. Sometimes when the market falls, most long-term SIP investors feel happy that they are able to buy cheap. Not only that, for its simplicity and practical context, utility that you earn every month, you pay your EMI every month and you save every month.
Otherwise, historically, what has been happening is that you are saving in your bank account and at one point where you have Rs 5 lakh, Rs 1 lakh, then you think of investing. Here, you are able to average it and it has become convenient. The money moves out of your bank account and so, also we are talking about large SIP, the growth of SIP.
But when you look at it in the context of the Indian middle class and all the number of iPhones sold and the number of 20,000 plus smartphones sold in this country or all other kinds of spending that we get to know about, SIP is virtually in its state of infancy and that too also has been perceived differently. Everybody has just tried it out, tested it, it is just kicking the tyres. I think we are in very early stages and if this continues, there will be a problem in terms of having the supply side because the relative scale of the market or the liquidity in the market or the breadth of the market is not good enough to absorb and there is a problem in terms of the depth of the market to be able to absorb sustain right, because it is just not SIP. It is also the NPS money. If you look at another side, it is almost like one-fourth of the SIP money is coming by way of private sector and NPS and that NPS is not 15% equity. It is 75% into equity and that too into only top 200 stocks, so that is something which has not been noticed by investors or not being talked about because it does not come in large numbers by individual checks. It just comes by way of the employers remitting the money from the deduction month after month and the growth rate of that is phenomenal that has gone unnoticed.Let us then close it with one actionable advice, which is that if you decide to change asset allocation during euphoric times, which is 2000 when TMT bull run was crazy, 2007-2008 when this entire so-called old economy infrastructure boom was at play, they were rewarded with the prudent choice of making some shifts here and there. For somebody who has got a large asset allocation to equities, which purely has become large because of the appreciation, is it time to rein in or is it time to continue to ride on?
Dhirendra Kumar: It is time to rein in because the last three-four years have been so extraordinary that everybody just came on board post COVID and then have been in a state of market and mind that you have missed the bus and you should not exit. Think of asset allocation if you do not have one. If you do not have asset allocation, you will not get an opportunity to rebalance. You will only watch it go up and down and the first-time investors who have come in the market in the last four-five years will be greatly disappointed because they have not seen any blow so far. So, if you have no fixed income, have 20%.
If you have some fixed income, make sure that it is 33% and you are actively keeping track of it and rebalance it. Define your rebalancing rule that if there is a shift of more than 8%, I will rebalance. Do not do it on every change but do that and if you are able to frame that rule, document it, keep it on the tagboard to remind you on an ongoing basis, and that will enhance your return and you will be able to capitalise on all the intermittent opportunities that come your way.
