Excerpts from a CNBC-TV18's interview with Dhirendra Kumar that was broadcast earlier today:
Q: What would be a sensible way to approach mutual fund investing after the carnage of last fortnight?
A: It just brings to the front basic tenets which individual investors should follow because they are naive and people who don't have the inclination or the time and want convenience and a small ticket investor. Anyone who had been investing for a while, I don't think he has anything to worry because in equity funds, it assumes that you would be investing for a few years.
The real problem is the people who are chasing performance. There you have a problem because there you tend to ignore the long-term history, chase short term performance and you land into a fund which has been fallen as much as some of the hot stocks.
But still, most mutual fund investors are still deriving the benefits of a diversified portfolio. No one is in the kind of trouble as they would be chasing a hottest stock. Compared to that, most mutual fund investors would be better off.
Q: The question for a lot of investors is what kinds of funds should they choose if they want to allocate fresh capital after the fall. After looking at the May 2006 experience where their diversified equity portfolios did not perform for many months, are they better off just in index funds, are they better off in midcap kind of funds, or are they better off buying diversified equity products? What would you recommend?
A: I would suggest that most individual investors should focus on choosing a good fund manager with a five year history and not go for anything exotic. Investors should be much better off ignoring a thematic fund or a sector fund or a midcap fund, just go for plain vanilla.
When it comes to investing in mutual funds, vanilla is the top flavour, simply because, if you have chosen a good fund manager, he will do the rest.
There are few things which an investor can do which is, only allocate long-term money and be regular with your investing. If you don't trust a fund manager, go for an index fund. If you are unable to figure out which fund to buy then go for an index fund. The case for an actively managed equity fund is still very strong and it's likely to prevail for a while.
Q: What are you seeing and hearing by way of any redemption pressures up until now from any of the funds?
A: I don't think there's any meaningful redemption pressure. Contrary to that, there are 5-10 equity NFOs in the pipeline and they are currently on offer. They are evoking a nice response and investors are pretty excited about many of these funds.
Q: Investors are most exited about Reliance Funds. What kind of response do you think the Reliance Natural Resources will get and by way of money they are able to raise as well?
A: It's going to evoke a huge response not because it's a great fund, but it has Reliance in its name. Reliance as a fund family has been a great fund family which has delivered great returns in its equity funds. But the Natural Resource Fund, the name itself is creating some excitement and some confusion.
People think that it's a group company and it has something to do with it. But I think it's a bad idea simply because at this point, investors have a few things to do. One is, if you have to choose between giving your cash from which a portfolio will be built, compare to that buying a diversified portfolio which has a credible performance history, I think one should choose credible performance history. That's a good enough reason for you to go for an existing fund.
I think Reliance Vision is a great fund too for most investors to buy. They should buy that fund instead of this fund where a portfolio will be built. This fund, because it is evoking a great response, that itself will be a disadvantage. One, there's going to be a limited investable universe and on top of it, the fund manager will be posed with the challenge of deploying all the money in a brief period of time.
Q: From the funds open right now, aside from that one, SBI, ICICI Prudential, which looks like the one most interesting to look at?
A: They are interesting from a business perspective for the fund companies, but I don't think they are an interesting alternatives for investors. This is because investors have a superior choice in each of them.
As I said about Reliance Natural Resources fund, if you have any amount to invest, put that money in Reliance Vision. Likewise, if you have any money then invest in the SBI Tax Saving Fund, why not buy Magnum tax gain? It's a great and top rated fund by us, it has a long term history of solid performance.
Some of these new offerings will be expensive and to top it, it has no history.
Q: Are you seeing that happening this time around, that there is interest in existing funds and particularly after the market fall and the way NAVs have slipped a little bit as well?
A: I don't see that there is any shift because investors like NFOs. They are NFO fans simply because they have this misconceptions that they are buying something cheap at Rs 10. I don't think it serves any fund company's interest to create awareness that if they are buying it at Rs 10, it's not cheap.
To top it, closed-end funds can still be launched and the expenses loaded on to investors. So it's beneficial to them that the whole cost of launching a fund can be loaded on investors. So I don't see anyone demystifying the misconceptions. But I think, talking from a viewpoint that an investor is making a sensible choice, thoughtful investors should avoid the NFOs, there are other great funds to choose from.
Q: What kind of money do you see all these NFOs raising because that's going to be another source of capital for the market?
A: I am hopeful that these funds will actually raise a substantial amount of money, anywhere between Rs 8,000-10,000 crore, in the next six weeks.
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