'Models can assist, not replace, stock selection'

Model-driven vs human-led portfolios?

Investing in stocks is an art, not a science. Stock selection is ultimately a skill that drives wealth creation. Human judgment remains one of the most sought-after qualities in stock picking. At LIC Mutual Fund, we view data-driven models as powerful enablers, not replacements. Over the years, we expect more strategies to be model-assisted— particularly in passive and factor-based products, where rules-based investing adds consistency. However, mathematical models can only complement, not replace, stock selection. Qualitative insights, management interactions and macro interpretation often separate average from exceptional outcomes. Alpha, in our view, still has a human heartbeat.

Post-stress test safeguards?

Stress testing is a welcome regulatory initiative that has made the industry more cautious when trading in riskier assets. We have tightened liquidity buffers, exposure norms, and implemented scheme-level risk triggers. For example, in debt funds, we maintain sufficient liquidity and run redemption stress simulations. As advised by SEBI, we conduct regular stress tests simulating the liquidation of 50 per cent and 25 per cent of portfolios in LICMF Mid Cap and Small Cap Funds. This shift from “return optimisation” to “resilience-first investing” ensures investor exits remain smooth without significant impact on NAVs, even in volatile markets.

On low-friction investing and investor churn.

Digital access has made investing easier, but also stoppages and redemptions. This significantly influences wealth creation. The SIP stoppage ratio rose to 74.51 per cent in August, up from 62.66 per cent in July and 57.15 per cent a year ago. In August, 41.15 lakh SIPs were discontinued or completed, while 55.23 lakh new SIPs were registered. Despite the churn, SIP registrations continue to appear stronger. To address this, we actively engage with investors and distributors to emphasise the merits of long-term, goal-based investing. The message is clear: convenience should not come at the cost of discipline.

Rapid-fire questions

• One AMC you admire (not yours): Vanguard.
• One hot trend you’re glad to have skipped for your investors: Exotic crypto-linked funds.
• One fund manager, past or present, you would love to have on your team: Peter Lynch.
• Beyond returns, one criterion you want investors to judge your AMC on: Trust.
• If not running an AMC, what would you be doing? Teaching finance to young minds.

This article was originally published on October 24, 2025.