In 2009, the TV channel ETNow launched a set of model mutual fund portfolios that were designed, managed and tracked by Value Research. The portfolios and their performance are part of a regular TV show whereby viewers can learn about these portfolios, track their performance and emulate them.
Now, on the seventh anniversary of these portfolios, it's a good time to look back and see what they tell us about investing in mutual funds over a longish period. Of the five portfolios, four are investment portfolios and one is an income portfolio. By that I mean that four of them are accumulative portfolios where ₹10,000 is invested every month. The goal of these portfolios is obviously to grow the investments.
The fifth portfolio is designed to provide a regular income, as you would after retirement. This portfolio started with a certain investment and a fixed sum is withdrawn from it every month. The growth portfolios vary by the ratio of equity and fixed income funds in them. Obviously, the higher the equity part, the more the returns potential as well as the potential for periodic volatility and decline in value. We've named these portfolios Aggressive, Growth, Stable Growth, and Conservative. This pretty much describes what the nature of each one is.
Let's look at what each portfolio is and how it has done. In each of the portfolios, we invest ₹10,000 a month which has added up to an inflow of ₹8.4 lakh over the years. The aggressive portfolio has 90 per cent flowing into equity funds and 10 per cent in a fixed income fund. Over the seven years, the ₹8.4 has grown to ₹16.46 lakh. This is a return of 18.74 per cent p.a. Over the same period , the Growth portfolio has grown to 13.3 lakh, which means returns of 12.8 per cent p.a.. The Stable Growth portfolio has grown at 13.8% with a value of ₹13.76 lakh, and the conservative portfolio has grown to ₹12.05 lakh with a return of 10.06 per cent. If you are trying to do some mental maths on 8.4 lakhs turning into 16.46 lakh etc, remember that the 8.4 lakh was not there for the entire duration--it was accumulated month by month.
The fifth portfolio, which is meant to generate income, is called the 'Income & Growth' portfolio because along with a regular income, we would also like the principal to grow a bit. This portfolio started out with ₹10 lakh in mid-2009. Every quarter, ₹20000 is withdrawn from it. This adds up to ₹80,000 a year, that is 8 per cent of the original investment. Thus, over the seven years, we have withdrawn ₹5.6 lakh from it. The interesting part is that the original corpus of ₹10 lakh has also grown to ₹12 lakh. This means that even while withdrawing an income of 8 per cent per year, we have grown the capital by 20 per cent. This is just the kind of income-generator a retiree needs.
An important part of these portfolios was that they were designed to be very low maintenance. In fact, they have been basically zero-maintenance. Apart from some minor adjustments in 2010, they have never been changed. This is important because apart from the savings and the returns, being able to be hands-off is an important advantage that mutual fund investing gives you.
Now you can draw any number of conclusions from these numbers. However, the most important is that the return have been much better than the general performance of the equity markets despite there being a good dose of stability-providing fixed income investments. Over this period, the Nifty has generated returns of 9.5 per cent while our conservative portfolio--which is no more than 35 per cent equity--has generated more than that. Of course, the aggressive portfolio has earned a huge margin over the markets and it still has 10 per cent fixed income.
The biggest takeaway is very simple--if you have a long horizon, choose a small set of funds with a little bit of care, start SIPs in them, and then forget about it. You'll do very well.
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