'Factor investing is a proven strategy gaining traction in India'

How is your team viewing the current market valuations and preparing for possible corrections?

Markets can be up; markets can be down. In my opinion, 'diversification' is the closest to obtaining some kind of a 'free lunch' in investments, and asset allocation works on the principle of diversifying across various asset classes. It is well established that different asset categories like equities, fixed income, gold and real estate perform or behave differently under different market conditions. Unfortunately, investors spend a lot of time and energy predicting the future winning stock or sector and timing market entries and exits. Still, there is no crystal ball available to help pick future winners.

Diversifying a portfolio into various asset categories is one of the best risk mitigation tools. One of the easiest ways to practise asset allocation is through ETFs/index funds across equity, debt and commodity.

Are index and factor-based passive funds a fad or a lasting investment strategy?

Factor investing is a proven strategy that has seen global adoption and is now gaining traction in India. For decades, investors have leveraged factors like value, momentum, quality, size and low volatility to optimise returns. When a fund manager develops expertise in a specific style, such as identifying undervalued stocks, this is essentially a form of factor investing. These strategies aren't new, but their adoption is becoming more structured and accessible, especially with the rise of passive products. Yet, factor investing is challenging due to its cyclical nature and the difficulty of predicting which factor will outperform.

Predicting which factor will outperform at any given time is inherently difficult. A smart approach is to incorporate factor-based strategies using a core-satellite model. Build the core of your portfolio with a diversified ETFor index fund and use factor-based products as tactical satellite investments to leverage broad market exposure and targeted factor performance.

Will AI impact your business? How and why?

AI will impact design, marketing and customer support for starters. The ability of AI models to do chain-of-thought reasoning in conversations is improving; hence, it is similar to having an agent on demand with whom you can bounce off ideas, think through a problem or help with your research. These models will improve with time, and hence, different functions within organisations need to keep up with the advancements to ensure productivity goes up.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Auto-rebalancing for asset allocation.
  
• The biggest mutual fund myth you'd debunk.
  If a fund house closes down, then the investor's capital also goes down.
  
• An unconventional asset class you'd add to your portfolio.
  Gold.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Rocket Boys.