- Fund managers & their investment approach
- Choosing funds for one's portfolio
Alex Mathew in conversation with #Moneyfront's Mohit Gang and Finwise Personal Finance Solutions' Prathiba Girish. on 'The Mutual Fund Show'.
- Choosing funds for one's portfolio
Alex Mathew in conversation with #Moneyfront's Mohit Gang and Finwise Personal Finance Solutions' Prathiba Girish. on 'The Mutual Fund Show'.
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TVTranscript
00:00 Hi, thanks so much for joining in.
00:10 You're watching the Mutual Fund Show and my name is Alex Mathew.
00:13 This of course is NDTV Profit.
00:15 This show gets you actionable insight in everything related to mutual funds.
00:19 So if you've got a question as to which mutual funds to select, but more importantly which
00:25 strategy to follow, then this is the place for you.
00:28 On today's program, we're going to be discussing a very old discussion, which is should you
00:36 go for the growth approach or should you go for the value approach when you're getting
00:40 into equity mutual fund schemes.
00:43 And we look at the performance of these two approaches over the last several years and
00:47 try to get you a sense as to which you should espouse and in which situations.
00:52 And in the second part of this show today, we'll be talking about ESG funds.
00:57 They were launched with a lot of fanfare, but unfortunately their performance has left
01:02 a little bit to be desired.
01:03 We talk about why that is and whether or not they still should find a place in your portfolio.
01:10 Joining me in studio this time around is Mohit Kang, the co-founder and chief executive officer
01:15 of Moneyfront and Pratibha Girish, the founder of Finwise Personal Finance Solutions.
01:21 Thank you so much to the both of you for taking the time.
01:23 Always a pleasure.
01:24 This time it's especially a pleasure to have you in studio.
01:26 Thank you so much.
01:27 Thank you so much.
01:28 So let's start with the first conversation, which is growth and value.
01:32 This is something that is a very old conversation.
01:35 First of all, give our viewers a sense of how old this conversation is.
01:39 Mohit, in your experience, I'll start with you and then I'll go to Pratibha.
01:43 How often have you been asked this question about whether should I go for growth or should
01:47 I go for value?
01:48 Look, I think since the time humanity was born and I think that far back, yeah, because
01:55 we talk of Warren Buffet and Benjamin Graham and that's where the entire value philosophy
01:59 originated, right?
02:00 So for the investing world, value philosophy was the one which actually was the right investing
02:06 philosophy, which was meant to be true investing.
02:09 And then gradually multiple other theorems came into play and growth became a real big
02:14 thing globally, right?
02:16 In India also, I think we have seen number of fund managers, fund houses espousing one
02:21 philosophy or the other, but today in today's time and age, we see a blend of everything
02:26 and anything which you find under a fund houses banner.
02:29 I think the AMCs have become smart enough to understand that no one philosophy ever
02:33 triumphs across different market cycles.
02:36 So I think a blend kind of an approach, having all different fund managers, different styles
02:41 under the same banner and then trying and running different schemes with different theorems
02:46 has always worked well.
02:47 So mix and match approach, but let's try and identify what these two mean in the first
02:52 place, right?
02:53 If you're talking about growth and value and of course, these are the two primary ones
02:57 that people talk about, but there are like Mohit said, mixes and matches that create
03:02 different names.
03:04 But how would you describe growth versus value?
03:07 So essentially if you look at the definition of value, it is picking up stocks which are
03:12 lower to intrinsic value of the stock.
03:14 So you pick up something which is not, it's lesser than its intrinsic price and wait for
03:20 the value to get unlocked.
03:21 In growth, you're paying for the future growth.
03:24 You've seen that there is consistent growth of profits, revenue, whatever you say, and
03:28 there is a runway for future growth in these companies and therefore you're willing to
03:33 pay a higher P. You're not likely to get dividends because they're investing and they're growing
03:36 their business.
03:38 So that's the, you know, a sense between value and growth.
03:42 Now traditionally, the fund houses have either, you know, veered towards growth or towards
03:48 value, and there have been pain points for the investors for a very long time in both
03:53 of them.
03:54 You know, something has done well, the other one is languishing and therefore there is
03:57 big pain point.
03:58 But off late, you see even those, you know, fund houses which stood very, very strongly
04:03 in favor of say value or growth are looking at adopting blend style, having different
04:08 fund managers who will bring in different, you know, thinking process, both value and
04:12 growth are being incorporated.
04:14 I think it's a very welcome change, making the journey of investors far more pleasant
04:19 and conducive to staying put.
04:21 You know, when I asked you how long it was, I didn't expect you to go to the birth of
04:24 humanity.
04:25 But then at least we can say that the birth of investing, because people anyway sought
04:30 to identify value early.
04:33 That's the whole idea of betting on something early.
04:36 But having said that, I am sure my viewers are wondering, in the landscape as it stands
04:42 right now, are there any AMCs that very clearly move towards growth or very clearly move towards
04:49 value and which fund managers over the course of the last couple of decades or three decades
04:54 have very clearly indicated that I prefer this over that?
04:57 Perfect.
04:58 So, look, I think there was a time up to five years back when there was a very, very clear
05:02 distinction in the industry.
05:03 You had an HDFC AMC leading all the way on the value pack with Prashant Jain espousing
05:09 it.
05:10 And he was a very big philosopher of that, as in a very big proponent of that.
05:14 And then you have S. Narain from ICICI.
05:16 I think he's one big steadfast believer of value philosophy.
05:20 And at the fund house is always centered around that.
05:24 The overall thought process of the fund house is centered around that.
05:27 And then I think as we've been discussing, more often than not, you see fund houses having
05:31 one or two schemes with a value approach, but predominantly then they will have something
05:35 with quality, something with proper growth.
05:38 And these days, perhaps you also find momentum as a strategy which is coming into play.
05:41 So, number of different approaches are coming into play.
05:44 But pure play value, I would say, what we have seen is HDFC and pro-ICICI to a very
05:51 large extent.
05:52 And then some bits and pieces, maybe in Franklin, maybe in SBI.
05:56 But again, as I've said, these days, everyone has all the approaches under the banner, under
06:01 one roof.
06:02 But then the bottom line is which has worked and which has not over the last several years.
06:06 And I suppose it depends on where in the last 10 years you want to start the clock.
06:13 So talk to us about how these strategies have worked in different periods of time.
06:19 And you showed me this graphic at the start.
06:22 And hopefully we can pull that up on the screen as well.
06:25 How have they worked?
06:26 So, if you – growth, we talked about value-focused mutual funds.
06:31 And if you talk about growth, the first thing which comes to mind is Axis Mutual Fund.
06:35 It was for growth for such a long time.
06:37 And they've also had the difficult part of manoeuvring the last three, four years.
06:42 Then Mirai also is now blend, but then largely growth.
06:46 So if you look at the performances, say, two things you can do.
06:50 One is you look at the MSCI index for value and growth.
06:56 If you look at it over the last 14 years from 2010, the initial period you see, except from
07:02 2010 to 2018, except for '11 and '15, growth has done better.
07:08 Sometimes marginally, sometimes substantially.
07:09 80 years, practically.
07:12 And after that is when value is picked up and value is done better in four out of five
07:17 years in the recent past.
07:19 So recent memory is very strong and now we will say value is the way to go.
07:24 If you look also at if the philosophy of the fund house itself is value or growth, and
07:29 you look at the large cap funds of ICICI and HDFC and large cap funds of Axis and Mirai,
07:35 the verdict is split.
07:36 Five years value has done well, as in ICICI, HDFC funds have done well.
07:40 The other five years, Axis, Mirai, average has done well.
07:43 So there is – I don't think there's a verdict that one is better than the other.
07:47 I think it depends on the time frame.
07:48 Okay, it depends on the time frame.
07:51 But then, so therefore, the most important point, which is what is the ideal approach
07:55 to have?
07:56 I think you pointed out fund managers themselves are realizing that not one single approach
08:01 is the way to go and they're blending.
08:03 Like you said, they're moving towards momentum as well and using quant factors, some of them
08:08 also to make their fund choices.
08:11 So what should the investor bear in mind?
08:13 Because ultimately you're talking about most investors that will choose to have a basket
08:18 of mutual fund schemes, even in the equity category.
08:22 How should you make your selection?
08:23 Perfect.
08:24 Look, Alex, I've always believed that more important than diversifying across asset classes
08:29 and market caps is diversifying across fund managers and differing investment styles,
08:33 because that is what will actually differentiate your portfolio in a very, very true sense.
08:38 So I think for investors, they have to have all kinds of approaches in their portfolio.
08:43 They have to have one or two funds which are pure, pure value kind of styles.
08:48 A couple of funds which are pure growth.
08:49 And maybe these days, as I told you, you will have some quality based funds.
08:54 You will have some momentum based plays.
08:56 You have other factors also which are getting extreme amount of prominence in the market.
09:00 And if you think you can't actually go ahead and identify a good manager and distinguish
09:05 him from his investing style, right, then it is always good to go passive and figure
09:09 out these factors.
09:11 And there are all kinds of factor based passive indices now available in the Indian market
09:15 across all market caps.
09:16 So it's become very easy for investors to actually just simply go out and select those
09:21 factor based passive indices, which are called smart beta funds.
09:26 And just play any kind of style which you want to play.
09:29 And those incidentally have beaten the benchmark quite handily.
09:31 Hollow.
09:32 Over the last five years at the very least.
09:35 We will come back to passive in just a bit.
09:37 But what do you have to say in terms of the strategy?
09:39 Because the other aspect is how many schemes should you hold?
09:43 On the one hand, the advice is shouldn't hold too many schemes because that's not very effective.
09:50 So assuming that you have to hold a small amount, how do you choose?
09:54 So you have market cap based allocation which goes into funds.
10:00 In that you can choose some of them as value, some of them as growth.
10:03 Because ultimately we all know that everything will give good returns if held over a long
10:07 term.
10:08 While that's so easy to say, it's very difficult to follow.
10:11 And is it relative outperformance or underperformance?
10:13 Absolutely.
10:14 The absolutes don't matter today.
10:15 If large cap is doing 30%, it's still not good enough.
10:18 If something else is doing 60%.
10:20 So if there is that comparison which is there and gives you the stability to hold on to
10:25 it, saying that at least something in my portfolio is doing, therefore my portfolio overall is
10:29 okay.
10:30 And you should build conviction before you choose to invest and have expectations which
10:34 are right.
10:35 That all points of time, all funds are not going to do well.
10:38 Some style will do well, something else will not do well.
10:41 But hold on to them and their time will come.
10:43 It makes following all these behavioral biases, getting rid of them very easy if you have
10:49 all styles.
10:50 So I think not too many, but if you have a flexi cap in value, then you have something
10:54 else in growth.
10:55 And that way you can balance out.
10:57 So on the market cap side allocation is what you do.
11:01 Just a last question.
11:03 Should you look at value primarily, for example, as she's pointing out, in the broader end
11:08 of the market, considering that these are relatively smaller companies, maybe some that
11:13 are undiscovered.
11:14 And on the growth side, you look at the larger, more established companies and maybe even
11:19 have like an index approach, not necessarily a factor-based approach, but allow your index
11:25 allocation like say a nifty 50 or nifty next 50 kind of an allocation, take care of your
11:30 growth.
11:31 Look, again, there's no right or wrong in this thing.
11:35 And as Pratibha rightly mentioned, Alex, there are cycles of each of these styles.
11:40 Sometimes the value cycle will play out on the large cap also.
11:43 And sometimes the growth cycle will play out on the mid and small cap.
11:46 Predominantly we consider that the growth cycle is more associated with the mid and
11:49 small cap segment because that's where the larger part of growth is yet to be uncovered.
11:54 But there is no hard-coded rule about it.
11:58 But yes, to answer that, perhaps you have a passive index-based approach on the large
12:04 cap side, which just simplifies your overall investing process, right, and it covers and
12:08 captures the whole essence of market.
12:10 And then on the mid and small cap, it's always good to go with one active, one passive, which
12:14 kind of gives you the flavor of everything.
12:17 If you're going on the active side with a growth kind of a strategy, then on the passive
12:20 side you can perhaps choose a value style.
12:24 Or if you're going on the passive with a broader index, then on the active side, you try and
12:30 figure out a fund manager who's chasing aggressive growth.
12:32 So you have to just mash it up.
12:34 Fantastic.
12:35 All right.
12:36 We're going to talk about ESG.
12:37 Now, it was launched with a lot of fanfare a few years back, and it held a lot of promise.
12:43 But unfortunately, the actual numbers, if you put it in black and white, they've not
12:49 really proved compelling, if you can call it that.
12:54 Let's find out why.
12:55 I'm joined, of course, by Mohit Gang as well as Pratibha Girish.
12:58 Thank you so much, as always, for taking the time once again.
13:01 Let's talk about ESG.
13:03 And Pratibha, I'll start with you this time.
13:05 Why haven't they worked?
13:07 There was a lot of fanfare, like you said, post-COVID environmental factors.
13:11 I think people were more conscious.
13:13 And a lot of funds got launched at that point of time.
13:16 Even today, there are only eight funds in this category, active funds.
13:19 Two were in existence before 2020.
13:22 Five were launched in '20 and one on '21.
13:25 So there was a lot of action at that point of time.
13:27 And people expected, it's intuitive, right?
13:30 Social and governance.
13:32 What can go wrong with this?
13:33 I mean, you're bound to get good returns.
13:36 But what happened, I guess, after that was the Ukraine war.
13:39 And after Ukraine war, defense took off like anything, and then fossil fuels.
13:44 And both of these are not included.
13:45 Ultimately, the proof of the pudding is in the returns.
13:48 So the returns have kind of languished as compared to large and mid-cap, large-cap,
13:51 flexi-cap, any of that.
13:53 They've languished over the last four years.
13:55 Slowly, people have kind of lost interest in it.
13:58 Added to that, the TERs are slightly high.
14:00 It's a niche segment.
14:01 So more expenses, lesser returns.
14:05 So the sheen is gone as of now.
14:07 I guess it will, only time will tell whether the, no measures, et cetera, which can be
14:12 brought into place so that this will take off once again.
14:15 Mohit, what is the advice that you've given your, or people who come to you for advice?
14:20 Because ultimately, like Pratibha was saying, the proof of the pudding, it has to return.
14:27 And look, it was not launched as something that you are doing for the betterment of society.
14:34 The idea was that these are entities that are ahead of their time, they're planning,
14:38 because ultimately, they will have to change.
14:40 The idea is that these companies are changing ahead of time, and so they will be held in
14:45 better stead when things go bad.
14:48 But that hasn't proven the case.
14:49 Look, honestly, I think as Pratibha rightly said, and as you were saying, investments
14:53 finally have to yield higher and better results and better returns for investors.
14:58 We obviously care about the environment, care about the highest forms of sustainability
15:03 and all those things, but that's not the business which we are into, right?
15:07 And that could have been taken care of well through other means and measures, whatever
15:11 you do in your personal and other lives, right?
15:14 From an investing perspective, purely, I think India is still a developing country.
15:18 We are grossly, what do you say, we are investing very heavily on infra, capex, multiple other
15:25 things.
15:26 Sustainability is a little far away from wherever you and I are standing right now.
15:31 And I think as a developing economy, we will continue to burn those fossil fuels, we'll
15:34 continue to, perhaps because so many new companies are coming in the listed space, you will find
15:40 some corporate governance issues, you will find some other societal issues, right?
15:45 I think one of our guests on one of the market shows pointed it out very well, right?
15:51 Because these are essentially Western concepts and a lot of Western countries have gone whole
15:58 hog and said we will ban fossil fuel or we will ban this kind of power generation.
16:04 Our government cannot afford to do that because millions are depending on a power that is
16:10 primarily thermal power and we have to burn coal.
16:14 We can't go black, right?
16:15 Absolutely.
16:16 There is no alternative to coal, there is no alternative to thermal energy right now,
16:19 right?
16:20 So if your country sustains on almost 85% of thermal energy, then there is no which
16:24 way you can actually ignore that possibility, right?
16:28 And in such a large populace, it's very difficult to really find true to blue ESG themes, right?
16:34 The measurement of ESG data also in our kind of countries is not very accurate, right?
16:39 It's very difficult to say that okay, this country is a true blue, this company is a
16:43 true blue blood ESG follower and this one is not because everyone has those chinks out
16:48 here, right?
16:49 And when you weed out the good names is because they have one or two smaller factors perhaps,
16:55 right?
16:56 And I think that's where you lose out on the returns and which is what investors are looking
16:59 for.
17:00 And one last thing Alex, I don't think so today the last common denominator investing
17:04 in the market actually understands the concept of ESG, right?
17:07 So I don't think so that retail investor coming from a B30 city who is putting in his 20,
17:12 30, 50,000 rupee application actually is aware of what ESG means and what is the fund trying
17:17 to do at the end of it and what is the differentiation he is getting by investing into it, right?
17:23 So for him it's all hunky-dory and he just wants to get the best of returns which is
17:28 available in the market.
17:29 So that's the bottom line, isn't it?
17:31 Absolutely.
17:32 The passion or whatever, if you say that I will compromise on my returns if it's for
17:35 the betterment of society and there's large enough people telling that, then it would
17:39 make sense.
17:40 But as of now we don't see that happening.
17:42 The ground reality is it's not happening.
17:44 And it's costly.
17:45 It is, yeah.
17:46 It is.
17:47 And how do you measure?
17:48 You know everybody measures governance.
17:50 You don't have to go to ESG fund for governance.
17:52 Every single fund manager talks about governance in a big way.
17:55 How do you measure environment and social impact?
17:58 So you know the scores, etc. which has come in is fairly new and it's going to take time.
18:02 Maybe it will still take off.
18:04 Maybe really early, maybe 10 years from now we will say ESG is the way to go.
18:08 But not yet.
18:09 Okay.
18:10 So I think there's consensus it doesn't really fit in your portfolio right now.
18:13 Would you say that?
18:14 I would rather go with a diversified FlexiCap kind of a choice than going with an ESG theme
18:18 because I'm assuming the fund manager is still working on good quality corporate governance
18:23 in those FlexiCap funds also.
18:25 He's identifying companies which are doing the right kind of business.
18:27 So bulk of it is taken care of, right?
18:29 So it's just about the environmental part which perhaps I think as Pratibha said, it's
18:33 a little too early.
18:34 Yeah, it's a little too early.
18:35 There are a couple of queries and I always invite our viewers to write in to us and over
18:42 a period of time they build up and we try and take as many queries as possible.
18:46 We will try and take a couple of queries today as well.
18:48 The first one we're taking is from Parikshit and he says that he's 45 years old.
18:53 He says that he started SIPs in 2017 and the total value is currently 17 lakh rupees.
18:59 He wants to stop his SIPs and keep the amount in those respective mutual funds for the next
19:06 15 years.
19:07 He's wondering what his corpus will be after that time horizon and will this strategy work
19:12 or should he withdraw the amount and invest in new schemes?
19:15 That's an interesting concept or a question.
19:18 He's been doing an SIP of 6000 rupees in Aditya Birla Focused Equity Fund and in UTI MidCap
19:25 Fund.
19:26 So it's quite interesting that he's got only two.
19:28 He's built a corpus of 17 lakh rupees and he's looking to hold these for the next 15
19:32 years without incrementing them.
19:34 It's interesting because he's 45 years old Pratibha.
19:37 So I'm not sure why he's saying that he wants to stop those SIPs.
19:41 Especially since he's had a very good run and he's found the right time to invest.
19:46 He's invested 10,000 a month and he has 17 lakhs as his corpus right now.
19:50 So the suggestion would be is if you can continue the SIP, not only continue, step it up every
19:55 year.
19:56 If you're only 45, your incremental income is going to come in.
20:00 So if you don't step it up, you'll possibly spend it.
20:02 So it makes sense to continue investing and stepping it up.
20:06 As far as the corpus goes, 17 lakhs if it gives 12% return should return about 93 lakhs
20:12 over 15 years time frame and if it's going to give 14% returns, which might be better
20:18 to go with 12, it will give about 1.2 crores.
20:22 So if you've built up that kind of corpus, then all the more reason for you to continue
20:27 with it and build a much larger corpus.
20:29 Yeah, because he's 15 years away from retirement, one would assume Mohit.
20:33 And these are the golden years when you're earning, of course, people say that the golden
20:37 years are early, but I think that the velocity that you get in your savings is when you've
20:42 built up a reasonable nest egg and then you increment it by a very large amount.
20:47 How important is the step up SIP or the step up investment that Pratibha just pointed out?
20:53 Because it kind of goes under the radar, but I've heard it described, for example, that
20:58 a good strategy to have is that if you are a salaried employee, Mohit, and if your increment
21:03 is taking you up by 10%, you were able to survive just the previous month with that
21:10 amount less than 10%, right?
21:13 So the amount that you're getting, perhaps instead of saving 30%, you should save 40%
21:17 because you don't need that entire 10%.
21:19 Absolutely.
21:20 Right.
21:21 So how do you approach it?
21:22 So look, Alex, my golden rule on this one has been, let's say if you start your career
21:26 with a breakup of 50-30-20, 50 is your expense, which is your daily expense, 30 is your discretionary
21:35 expense and 20 is your saving, right?
21:38 As you pass your age, as you move towards retirement, as you mature in your salary,
21:43 jobs and everything, the equation should change, opposite, right?
21:47 So 50 should be your savings and 30 should be your whatever discretionary, again, it
21:52 continues, and 20 should be your normal daily expenses and routine expenses because your
21:56 capacity, as you said, once you have built your nest egg, once you have your liabilities
22:00 well taken care of, in command of your career, your salaries have increased, right, then
22:04 you can save more.
22:05 So your savings pool has to keep continuously increasing.
22:08 It can't stay stagnant that you are saving 20% at the start of your career and you are
22:12 still saving 20% when you retire.
22:14 So that won't lead to any kind of a wealth creation.
22:17 So very quickly, because we are running out of time, a minute, this is now a very, very,
22:22 let's say, young at heart, I want to say, 78 years old, this is Lakshmi Narasimhalu,
22:30 who is asking a question, he has got a retirement fund, he wants to invest 5000 SIP, can you
22:36 recommend a few funds?
22:37 This is now perhaps a little late in the day to start a retirement fund, but assume that
22:41 he has a corpus and he has got incremental savings that he has got to make, what should
22:46 he do?
22:47 All of us would like to be in his shoes, at 78 we want to invest.
22:51 So if you are looking at investing at that age, we don't know when you will start withdrawing,
22:56 possibly earlier than later, and therefore balance advantage fund or multi-asset fund,
23:00 so you can consider ICICI balance advantage or multi-asset funds for investments, because
23:05 volatility will be lower, and therefore it will be easier to hold on for some time, and
23:09 withdrawals can also happen earlier than in a pure equity fund.
23:13 So and also do bear in mind that you need to have a holistic view, and this is, now
23:18 we don't have all of the information, and hopefully you have allocated based on your
23:22 risk profile, which is generally you would take less risk at that age, and you keep a
23:28 certain amount in equity of course to hold you in good stead over the next 20 years hopefully.
23:34 This brings us to the end of this particular edition of the Mutual Fund Show, thank you
23:38 to the both of you for joining in, and to you dear viewer, thank you so much for tuning
23:42 in, always a pleasure bringing you this program, do let us know what you think in the comment
23:45 section and stay tuned, lots more coming up over the course of the day.
23:48 This is NDTV Profit.
23:50 [END]
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