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00:00Hi, thanks so much for joining in.
00:09You are watching The Mutual Fund Show on NDTV Profit and my name is Alex Mathew.
00:12Like the name suggests, the show gets you actionable insight on everything mutual fund
00:17related.
00:18To that end, we are speaking about a new fund that is on offer.
00:22It is in the multi-cap category.
00:24It is a category that a lot of people are finding interesting, particularly because
00:30they have done incredibly well over the last couple of years or so.
00:34Vinay Paharia, who is the Chief Investment Officer at PGM India Mutual Fund is joining
00:40me to talk about the new fund that they are launching in this category.
00:43Vinay, thanks so much for taking the time.
00:45Pleasure having you on the program.
00:48Let's talk about what's on offer and why you chose to launch the multi-cap fund right
00:54now.
00:55Sure.
00:56So Alex, thank you for having me on the show.
01:01So the category is very straightforward.
01:03It is a category which, as the name suggests, invests in all capitalizations of the market,
01:10which means it invests in large cap, big cap and small cap.
01:15And the good thing about this category is that there is a base minimum requirement of
01:19investing at least 25% in each of the categories.
01:25And that ensures that at any point of time, the fund managers do not have excessive exposure
01:31to only one category.
01:32For example, if you look at the plexiglass category, almost two-thirds of the category
01:37is invested predominantly in large cap and just about one-third in mid-cap and small
01:42cap.
01:43Whereas in this, there is a base minimum requirement of 25% exposure to each of the categories.
01:49So I think from a long-range perspective, this provides an investor with a very good
01:55blend of all the three capitalizations, which ultimately results in a very good blend of
02:01potential risks and reward payoff, because small caps and mid-caps have a much higher
02:09level of reward potential along with underlying risk, whereas large caps act as stabilizing
02:16forces.
02:17So I think that's what's unique about the category.
02:23In terms of PGM, I think one of the ways in this fund is different from the rest of the
02:30multi-cap funds is that PGM follows an investment philosophy of predominantly investing in companies
02:38which are high growth and high quality.
02:40I want to get to that.
02:42Vinay, allow me to interrupt because I want to specifically talk about your philosophy
02:48in a bit.
02:49But before we do, a couple of aspects that I want to drill into, which is what is the
02:55likely size of the portfolio that you will have?
02:58What is the investable universe?
03:00Understandably, obviously, you're going to buy across the market because you have to.
03:05But you will have certain filters.
03:08Before we get into the investment philosophy, I think it will lead very nicely into that.
03:13What is the investing universe and what is the ideal size of the portfolio that you will
03:19have?
03:20Sure.
03:21So the overall investing universe, as you rightly said, Alex, is pretty large because
03:26we will invest across the capitalization.
03:29As we speak, there are more than 1,200 companies which have more than 1,000 crores of market
03:36share.
03:37So that is our investing universe, so to speak.
03:41And from these 1,200 companies, we then select companies which have got higher than average
03:46growth and higher than average quality on a future basis, on a prospective basis.
03:51So I think that's how the overall universe looks like.
03:55In terms of portfolio, number of stocks in the portfolio, it would vary somewhere between
04:0060 to 75, depending on the fund manager's ability and view on the market.
04:08And I was reading in your presentation that 160 to 200 stocks would basically be the drilled
04:14down universe.
04:15Is that accurate?
04:16That's perfect.
04:18That's perfect.
04:19Okay.
04:20So let's talk about the growth at reasonable price strategy, which, as I understand, the
04:25fund house espouses and what you're going to be trying to do on this scheme as well.
04:31Is that possible at this juncture, Vinay, considering the kind of run-up that we've
04:36seen across the board, particularly in some pockets, one would say that there is a little
04:41bit of stretch valuations?
04:43That's a good question, Alex.
04:48Paradoxically, it is the only strategy which is significantly underperforming in the last
04:55one and a half years.
04:57So while we would have imagined that in such a runaway bull market, high growth companies
05:03and high quality companies would be available at material premium valuations.
05:09I think, thankfully, that's not the case.
05:13This strategy has materially underperformed the set of companies which are on the other
05:18side, which is low quality and low growth.
05:21So just to give you some numbers, in the last one year, low growth, low quality companies
05:26have actually outperformed high growth, high quality on an average by approximately 25%.
05:33And I'm talking about just the NSE 500 companies.
05:37So I think there is a huge potential tailwind from both the aspects, which one is the underlying
05:44intrinsic value of these companies is growing at a faster pace.
05:49And second is, these companies have actually underperformed the overall market by a material
05:56proportion over the last 2-3 years, resulting in a reasonable valuation comfort in many
06:02of them.
06:04The time that we are in, at least according to me, Vinay, this is unprecedented times
06:10because of the kind of flows that you are seeing in the domestic market and any dip
06:15gets bought into very aggressively.
06:17So we haven't seen a major drawdown in a couple of years at the very least.
06:23You can go beyond that.
06:24The question that I have is that in a scheme like this, where you are forced to take allocation
06:3050% in the broader markets, 25% at the broadest end, there is little room to hide when there
06:38is a widespread drawdown, which we haven't seen in a while.
06:43How do you protect yourself against that drawdown?
06:47So I think when you are investing in equity, you have to first be ready to face a drawdown.
06:54There is no clear hiding place.
06:57If you are investing in equity, you have to ensure that you are ready to face a drawdown.
07:04Having said that, what we believe is that most of the market today is concentrated in
07:10low-quality, low-growth or high-quality and low-growth segments of the market.
07:17So roughly, almost a material portion of the market is concentrated in low-growth segments
07:22of the market.
07:24And I think that is where the opportunity is.
07:27Most people are diversifying themselves by, let's say, large, mid, small.
07:33Some of them are diversifying by, let's say, strategies like contra or something like that.
07:37But most of them are not diversifying themselves by the core of the strategy, which is high-growth
07:44and low-growth.
07:45We think high-growth has significantly underperformed in the last few years.
07:50This is a strategy which has delivered very strong returns over the previous 25 years.
07:56And hence, we think that there is a great opportunity for investors to diversify their
08:02portfolios if they do not want to increase their equity allocations.
08:08I think Pigeon Multicap offers a great opportunity to diversify their portfolio away from the
08:14existing theme which is prevalent in the market.
08:18We've been playing out on screen the various trends that the scheme will likely focus on.
08:22And so I won't ask you about that.
08:24But what I will ask you about is what, in your opinion, the ideal holding period is
08:32for an investor getting into a scheme like this at the start, particularly in the context
08:37of what we've spoken about so far.
08:41And would it be something that you would say, if you go, so suppose you step into a room
08:46of investors and they say, are we going to get the kind of returns that we've gotten
08:50over the last two years?
08:52How would you respond to that question?
08:56I would say you will not get those returns.
08:59I think I will use your channel and this media as an opportunity to highlight that what we
09:06have seen in the last three years, I don't think so any investor should extrapolate that
09:13over the next three years.
09:15We need to remember, as you rightly highlighted in the start of the show, that there will
09:20be drawdowns.
09:21Drawdowns are pretty painful and you should be ready to face drawdowns and not chicken
09:27out at that particular point of time and have a very long term investment horizon, which
09:33means buy and hold and forget for at least three year period.
09:38I think that's what we are looking at.
09:40Fantastic.
09:41Thank you so much, Vinay, for expressing that thought and that view.
09:47And I'm sure that my viewers are going to benefit from it.
09:50Thank you so much for taking the time.
09:54It's been my pleasure, Alex.
09:56All right.
09:57On that note, let's talk about multi-cap funds as a category.
10:01It's not like we haven't spoken about it often over the past several months, but I think
10:07it bears repeating.
10:08And let's look at some of the key performers.
10:11Let's look at the context that we are in right now, because it's an interesting time.
10:15A little later in this month, you're going to see the Fed meeting and you're going to
10:19see possibly a change in the interest rate scenario in that market or in that economy.
10:25And that's going to have a bearing on risk assets around the world.
10:28We don't know how India is going to perform.
10:31A lot of you have probably invested in multi-cap funds over the course of the last three years,
10:36and you've probably seen outsized returns.
10:39There might be skews in your portfolio that you might need to correct.
10:43We're going to talk about how this category has performed, why certain funds or schemes
10:48have outperformed the others, and what you should do if you're seeing outsized gains
10:53in your portfolio.
10:54Joining me now is Arnab Pandya, founder of MoneyEdu School, as well as Vishal Dhawan,
10:59the founder and chief executive officer of Plan Ahead Wealth Advisors.
11:02Thank you so much, gentlemen, for taking the time.
11:04Hopefully, you had the chance to listen to Vinay Bahariya, who was speaking to me about
11:11the fund that he is launching in the same category.
11:14We were talking about growth at a reasonable price, and he was explaining what his strategy
11:19is with regard to his portfolio.
11:21Now, Vishal, first question to you about this category, one of the reasons why it has outperformed
11:27is because fund managers have been forced to invest half of the assets that they receive
11:33into mid-cap and small-cap funds or small-cap stocks, and they've outperformed.
11:40The worry is that they could underperform down the line.
11:44Is that something that you are thinking about, and what advice do you give to your clients?
11:49Yeah, well, it's definitely something that one should be concerned about because both
11:53mid- and small-cap valuations on a trailing basis as well as a forward basis are significantly
12:00above their long-term averages.
12:03And therefore, investors need to be prepared that that segment of the market at least could
12:10potentially see some volatility, which is meaningful.
12:14Having said that, I think you need to keep in mind that one of the things about investing
12:20is about the discipline that one needs to maintain.
12:23And one of the advantages in multi-cap funds is the fact that there is limited flexibility
12:30that's available to managers to do what they want to do because they have to have 25% allocations
12:36to large caps, 25% to mid caps, and 25% to small caps.
12:41And it's only that balanced 25% that they can reallocate in the way that they want.
12:46And what you can see is that very often when managers have complete flexibility, they could
12:52be tilted so significantly towards the index composition, like you see in a lot of flexi-cap
13:00funds, that by default, they could end up having a very large-cap tilted portfolio at
13:07most times.
13:08So I think it's an important thing for investors to keep in mind that this discipline has definitely
13:15helped these funds do better in the last few years as mid and small caps have done well.
13:21And this could actually work against them in the future as and when mid caps and small
13:24caps correct.
13:25So your only real protection is to actually take a much longer term view than you would
13:31normally do.
13:32When I did speak about three years, we'd probably extend that to more like 7 to 10 years when
13:40you're looking at allocations which are as much as 50% in a portfolio to mid caps and
13:44small caps.
13:45Yeah, that's a fair point.
13:48Do you think about this as a тАУ okay, let me change the way that I'm asking this because
13:55you were speaking about this in the newsroom and what we were covering is that when there
14:00are restrictions on the way that a fund manager has to construct their portfolio, more often
14:06than not, if I look at multi-asset funds, which is not as restrictive as multi-cap funds,
14:12or if you look at multi-cap funds, they've actually outperformed and outperformed and
14:15how.
14:16So do you think that those restrictions have actually helped?
14:19No, if you look at it, restrictions help on the face of the risk management profile.
14:26So whenever you're looking at equity investing, risk management is very important and which
14:32is where the multi-caps provide the limits in terms of how much more risk the fund can
14:38take.
14:39So that is one aspect.
14:41But when you are looking at the outperformance angle, what we have to understand is that
14:47last couple of years especially, the rally in the market has been so broad-based that
14:53virtually every corner of the market has risen.
14:58So which is why you will find that most multi-cap funds are doing pretty well in terms of the
15:05returns aspect because of this broad-based nature of the rally.
15:10So the moment either this trend reverses or the concentration in terms of who is performing
15:17in the market becomes very evident, you will find that all these funds which are showing
15:24above average returns, they are reverting to a lower rate of return, which is what normally
15:32these funds should be providing.
15:34And what we are seeing today is something which is, I would say, abnormal in terms of
15:39the return sense.
15:40Yeah, that's a fair point.
15:42I'm coming back to you Vishal on this next question, which is that generally we found
15:46that investors tend to have too many schemes in their portfolios.
15:50In your opinion, how much of an allocation, and this is a tough question of course and
15:54it's not something that is going to be one-size-fits-all, but how much should you allocate to a multi-cap
16:00fund?
16:01How many should you have?
16:03Is one too less?
16:04Are three too many?
16:05How do you go about choosing?
16:08So I think the starting point of this has to be the rest of your portfolio composition.
16:14And clearly, one of the things that we believe in is that you need to have three elements
16:18to portfolios, even if you're thinking about equities.
16:21One is, be sure to have market returns getting delivered through a market capitalization-based
16:31index fund.
16:32So a Nifty 50 fund, for example, needs to be a part of your portfolio to get you market
16:37returns.
16:39The second is, look at some element of international diversification, because your biggest friend
16:45is going to be the fact that if you have money in multiple geographies, you will have periods
16:50where not all of them go up and down together at the same time.
16:54Now on top of this layer, assuming that you're anyway building some commodity exposure to
17:00gold, silver, etc., you now start to say, okay, within my other equity exposure that
17:06I want to build on top of it, how much multi-cap should I take?
17:12And can I take it through more than one fund?
17:13So our belief is that ideally, if you do want to have a multi-cap fund in your portfolio
17:18at all points, just because of the discipline of always having some mid-cap and small-cap
17:23in your portfolio, then one fund is enough.
17:27And having 15% of your exposure in that scheme is probably enough.
17:32I think you need to combine it with a flexi-cap fund, where typically you will find that the
17:38manager has flexibility to move in the way that he or she believes is most appropriate.
17:43And therefore, in multi-cap to 15%, an index strategy, which is probably even close to
17:51half of your portfolio and the rest of it in flexi-cap is probably a good option.
17:56That's well explained.
17:58I want to talk about a few of the out-performers and I understand that they will be skewed
18:03by the recent performance of the markets and having said that though, let's play out the
18:10out-performers over a period of five years.
18:12Here we are talking about the returns that have been generated on a compounded annual
18:18basis and you have nearly 34% return by the QuantActive Fund.
18:24You have Mahindra Manulife, which is not too far behind at 29% or thereabouts.
18:29Nippon India doing quite well for itself and Invesco.
18:31We've only taken the top five, but quite a few of these schemes have actually done well.
18:37They haven't managed to beat the benchmark though.
18:40If you think about it, even the fifth performer has actually underperformed the benchmark
18:47by a factor of 1.5% or thereabouts.
18:51It lends itself to what you were talking about, that broad-based rally and it's tough particularly
18:56in the broader end for fund managers to stock pick therefore and beat the benchmark.
19:01So then from that perspective, how do you choose the appropriate multi-cap fund?
19:06Which ones do you like and why?
19:08When I look at multi-cap funds, my core focus is on the fact that how is it able to manage
19:17the downside because a large part of what we can call in this particular cycle, the
19:22upside has been taken care of.
19:24So you still might have a good couple of years ahead, but I see several roadblocks and periods
19:33in the market going ahead where there will be tough times.
19:36And why is this important?
19:37Because over the last three, four years, post-COVID, if you look at it, it's been a one way around.
19:43Normally, you expect sharp corrections to come in for some major retracement also to
19:51take place overall, but which has not happened.
19:54So which is also changing the mindset of the investor a bit who are not paying as close
20:00attention to risk as they should.
20:03So for me, funds which are more in terms of reducing risk, ensuring that they are conservative
20:10in nature, for me, those funds, I prefer them.
20:14And within that list, my preferences are for the Nippon India Multi-Cap Fund, the HDFC
20:22Multi-Cap Fund and the ICICI Multi-Cap Fund.
20:27So specifically on these factors.
20:30Got it.
20:31Vishal, do you want to add to that?
20:32You've listed Mahindra Manulife Multi-Cap Fund and Nippon India Multi-Cap Fund.
20:37Why do you like these two?
20:40So very clearly, I think one of the things that Arnab did mention is the importance of
20:44risk management layered on top of the returns that are being demonstrated.
20:49And therefore, if you look at both of these funds, they actually have very good risk adjusted
20:55returns demonstrated through both higher sharps ratios as well as higher information ratios
21:01that both of them are demonstrating.
21:04And clearly, if you look at their performance, it's interesting to segregate the failing
21:11five-year data from also the rolling performance of how they've done over a period of time.
21:16And both of these funds seem to have done their job pretty well, independent of what
21:21obviously has happened in the last couple of years because of the strong rally in general.
21:26That's a fair point.
21:27It's time to take a few of the queries that have come to us.
21:30I'm going to ask my producer to pull that up on the screen, the number that you can
21:36send your questions to.
21:37And let's run through a few, gentlemen, if we can.
21:39The first question is from Shrikant and he's 30 years old.
21:42He's planning to start a SIP or an SIP at Rs 50,000 per month for purchasing a house
21:49that he anticipates will cost Rs 1.5 crore in five to eight years.
21:54He also requires funds for his daughter's education and marriage.
21:58He will retire, he says, by 40 to 45.
22:01That's quite the target.
22:04What are some of the funds that he can invest in?
22:06Vishal, you want to weigh in?
22:08He's got quite the ambitious targets.
22:10One, buying a house.
22:11Two, educating his daughter and spending for her marriage and also retiring early.
22:17Yes, I think it's a handful.
22:20And it's a very short period of time.
22:23So it is not going to be a very easy challenge to achieve.
22:27And therefore, I think the way to think about it is really to
22:31sort of, first of all, rationalize expectations a little bit
22:35in terms of what is possible and what is not.
22:39I think keeping his timeframe in mind,
22:45he technically has about 15 years to go before his retirement, let's say 10 to 15 years.
22:50So it may be a good idea for him to look at a combination of
22:53a domestic and an international index funding
22:58as a sort of starting point for him to think about.
23:02And then layer it with a FlexiCap fund on top of it,
23:08so that that combination of three funds can potentially do the job that it has.
23:12It's very important, though, that he needs to start
23:17reducing the risk gradually as it gets to the point where he wants to buy his house.
23:21You don't want to keep staying in equity till 5, 6, 7 years going forward,
23:29and then find that in the 8th year when you want to buy the house,
23:32you probably don't have enough because it's been a
23:34deep market correction that has happened at that point.
23:38Quickly jumping into the second question,
23:40Sai Krishna is investing Rs 15,000 per month with a 10% annual step up.
23:44He intends to invest for at least 35 years and his plan is to retire at the age of 60.
23:49He's got a few schemes. I'm going to read them off.
23:52Arnab, I've shared it with you. I'm going to rattle it off very quickly.
23:55The Nippon India Small Cap Fund, the Quant Small Cap Fund, HDFC Mid Cap Opportunities Fund,
24:00the Motilal Oswal Small Cap Fund, Nippon India Large Cap Fund, ICICI Prudential,
24:05Nifty Next 50 Index Fund, and the Parag Parekh FlexiCap Fund.
24:10Quite a few. And he split the investments into all of these.
24:14Should he continue with this? Is there anything that you would say about his portfolio?
24:18So, given the size of the investment that he is making, the number of funds are a bit too high.
24:23And that is obviously because you have two mid-cap and two small-cap funds.
24:27I mean, for the moment, these two funds within the same category can be merged.
24:33So, the small-cap fund can be the Nippon India one, the mid-cap fund which is retained can be
24:39the HDFC one. And the other are fine in terms of the spread out. Only thing that he has to
24:47take care of is that as he steps up the amount to ensure that it does not get particularly
24:53investment heavy in one particular sector or fund, so that there is an overall balance which is
24:59maintained. But the idea is that you have the funds right, keep increasing the amounts in the same ones.
25:05Yeah, that is a fair point. Thanks so much, Arnab, for getting us those details.
25:10On that note, that brings us to the end of this particular edition of
25:13The Mutual Fund Show. Vishal as well as Arnab, thank you so much for taking the time,
25:16for answering all the questions that you did. I encourage you to write to us on that number.
25:21We will spend more time on Monday taking some of your questions. That is all the time I said
25:26on this show. But there is more lined up on the other side. So, do stay tuned. This is NDTV Profit.