Dhirendra Kumar, CEO, Value Research India, says that getting into the top flavour of yesterday is not the best way to play equity, and rather multi-cap plain vanilla funds are the best in these times.
Here is a verbatim transcript of Dhirendra Kumar's interview.
The kind of performance that we have seen from the mutual fund fraction all this year, what are you recommending to your clients at this point of time? How does one go about saving or rather investing one's five-seven year saving?
After 2008, I thought too many people will take the same advice in the same seriousness and after this year a lot of the basic theories on which any financial planning is done is being questioned. One has gone back in time - even if you invested regularly, even if you have invested in equity gradually and even if you were conservative with your equity selection everything fell and now everybody has lost his two to two-and-a-half years worth of accumulation.
But I don't think it changes anything in the way we approach equity. The principle remains the same - if you are investing for many years, invest in equity, don't invest at one go, avoid a new fund and choose something which is not exotic, keep away from anything, which is fashionable and keep investing in something that is relatively dull but has been able to hold ground better even through the downturn. Today, investors need to comprehend that getting in the top flavour of yesterday is not the way to invest in equity funds. That thought is getting reinforced today.
Do you think plain-vanilla, equity-diversified mutual funds (MFs) are clearly the way to go right now?
Absolutely. A multi-cap plain-vanilla fund that is managed by a thoughtful manager - because I don't think any fund manger has been able to protect the downside very effectively. But at the beginning of 2008 till 2007, everybody was chasing past performance and whosoever was running faster was the top flavour.
Today, the difference between a good fund and a bad fund has clearly emerged very strongly. The bad fund is down about 85%, which will be worse than many of the worse stocks we have seen. So investors haven't got the benefit of diversification, investors haven't got the benefit of investing in mutual fund where professional management is not lending its benefit to the investor whereas there has been a decline in good funds but I don't think there is a compromise on liquidity and the pullback is sharper.
In a mutual fund, you are able to liquefy things and you are able to get rid of things as and when you want. So 2008 has been the most disappointing year ever since I started looking at mutual funds. However, 2008 has been able to clearly differentiate between a good, bad and a very bad fund.
Sectoral funds have really got bruised all of this year. What is your call on that and what are your top five picks?
I would say that most investors will do very well to keep away from any of the sectoral funds, any of the thematic funds because the moment you try to bet on a power fund or an infrastructure fund, you are taking away the role of a fund manager. A fund manager is supposed to be taking a judicious call for you. So you are just giving him a relatively limited mandate.
I would say that investors should be into old diversified equity fund, a multi-cap fund and don't spread your portfolio because what we have seen till 2007 is that investors were not owning one or two or five good funds or bad funds or new funds, he was owning 20 or 30 of them. That was not diversification of the right kind, it was too wildly spread for him to affectively monitor it, let alone manage it with intensity or keep a track of it.
So I would say that an investor should choose one, two or three funds, not stop his SIP (systematic investment plan), invest regularly and ensure that he is investing in three- or four-year-old investments. That, at least, he is going to be in such a fund for three or four years.