The Most Dangerous Number Is 1-Year Return, Says Radhika Gupta

The numbers have been around Rs 30,000-32,000 crore. I don’t think that concerns me. In the last few years after Covid, we have seen an extraordinary growth in India’s SIP book. The fact that we are sitting on a two-year period where markets have done nothing and the SIP book hasn’t halved is fantastic. It tells that SIP as a story is truly structured. In any SIP book, when there is a capital market correction, 5-10 per cent froth is just part of the game. The fact that we are still standing today at Rs 30,000 crore-plus makes me feel quite good.

I have been the greatest advocate of the long term, but I don’t think bad behavior is about gender, age or geography. It’s not even India specific. I think the reality is that in a more social media-driven era, people’s time horizons have gotten shorter. You want a body like that of (tennis champion) Roger Federer, but you want to do it in a week because you think some magic protein or gym will do it. The reality is there’s no short-term answer to returns. You get paid substantially more (in equities) than what you do in the bank (deposits) because you are willing to give it time and withstand (market) ups and downs. That is the fundamental principle of taking equity risk.

Yes, our time horizons have shortened. I always say an SIP is a 10-year product. For instance, we started our mid-cap fund, which is our largest equity fund, in 2007. We have seen the 2008 crisis, and some really bad times. Still, the worst return in our mid-cap fund on a 10-year SIP basis is 10 per cent, which is not bad. It was built as a 5-15-year product.

As an industry and as a company, we know behaviour (behavioural errors) is a reality (people become risk averse in times of volatility). The question is what can we do about it? We can build products that are more moderate risk-adjusted return products. The world is not either FD (fixed deposit) or crypto. The world is somewhere in the middle, and most people want to take some risk, but get very nervous with large drawdowns of capital. So, the industry has built balanced advantage funds (BAFs), hybrid funds, equity savings funds, multi-asset allocation funds, and now this new category of specialised investment funds (SIFs). All these products manage risk better and give moderate returns, which are better than bank returns.

When someone sees a large drawdown, say, a 30 per cent cut in their portfolio, they are tempted to stop that SIP and end that compounding journey. These (products) are enablers to make sure that journey continues.

It should not, but it does because money is deeply personal. Your money personality is very individual-centric, and it’s shaped by a lot of experiences that are unique to you. So, I am a somewhat frugal person. I grew up hearing about the value of money and sasta, sundar, tikaoo. It’s perhaps because I belong to the early millennial generation or the middle class. So, I have a very individual money personality. My brother, even though he grew up in the same house, has a slightly different money personality. It’s important to understand yourself because, finally, decisions on risk and choices of products are both individual.

In personal finance, personal always comes before finance. So, knowing yourself and recognising what kind of risk you can tolerate and why and what you will be okay with is one of the most important parts of the personal finance journey. What is okay for you may not be okay for me and that’s because both of us have different realities, different contexts. I don’t even buy thumb rules like 100 minus age as equity exposure because I believe personality matters more.

I am an optimist, so I always believe that individuals can change, learn and get better. I have seen lots of individuals start with a certain approach towards money, make mistakes, learn, and then seen a shift in their personality. People who were terrified to talk about money became comfortable, people who took excessive-and-not-sensible risks suddenly realised what works for them. Mistakes are a part of the process, but don’t interrupt the process. You can always start again.

Biases exist and my favourite book on those is Nudge (authored by Richard H. Thaler and Cass R. Sunstein). We cannot do much by talking about them, but by creating little nudges that prevent us from acting on those biases. For instance, if deferring your savings and investment decisions or timing the market (which I think is a terrible thing to try and attempt) is a bias we are struggling with, the best thing to do is to automate your investments through SIPs. Besides their investment value, SIPs have tremendous behavioural value since they automate that decision of how much to invest every month. So, building nudges to prevent yourself from making stupid mistakes is a good strategy.

I run an ELSS fund, but at heart I don’t love things that lock my money. I think liquidity is valuable. ELSS has a lock-in for tax-saving reasons (investment of up to Rs 1.50 lakh is eligible for tax deduction under the old tax regime), but even today (even if one is opting for the new tax regime), I can invest in ELSS. I don’t need to be locked in for tax reasons.

You do whatever it takes to make you behave well. For someone, it could be automation. For someone, it could be staggering their investments. It’s the same argument I have with systematic transfer plans (STPs). If you are going to invest for 10 years, doing a staggered investment over six months doesn’t matter (as it’s a small period in the 10-year journey). But if that’s going to make you feel more comfortable, then stagger it. Features are meant to help people. You shouldn’t over intellectualise it; if it works for you, it works for you.

I think the obsession with the past. I heard a very nice analogy today. When you are sitting in the driver’s seat, the front windshield is huge and the rear-view mirrors are small. But we are obsessed with doing what has worked in the past rather than thinking about what will work in the future. And I always say the most dangerous statistic in the investment universe is the last one-year return, which everyone loves the most.

No one is excited about closing limits, especially when there’s so much demand. I moved back to India in 2011-12 and I had nothing to do with the MF industry then, but I have been investing abroad ever since. That’s how strong my belief on global investing is. But there were very few international funds then.

I do believe diversification in every form of business is incredibly powerful. So, for people who do only SIPs, there are two options. One, you go to a stock broker and you use the Liberalised Remittance Scheme (LRS) limit set by the Reserve Bank of India (RBI) and pick direct stocks yourself. But that is tough. It’s tough enough to pick stocks in India, and tougher to do that with global stocks. The second option is GIFT City, the international finance centre in Gandhinagar, Gujarat. We have created outbound feeder options using GIFT City. So, you open a bank account and invest abroad. Just like you can invest in Edelweiss US Technology Fund or Edelweiss Greater China Fund domestically, we are creating vehicles to send money to those same funds from GIFT. I think in the next 10-15 years, GIFT is going to become one of the most popular options to invest abroad.

We see ourselves as a new-age asset management company and our endeavour is to provide products and access to ideas, solutions, asset classes for India of the next 10-20 years. Reits are clearly one of those asset classes. If I step back, real estate has always been a favourite with Indian investors, but it has had its challenges in terms of access, ticket size, kind of project, developer reputation, and so on. As a vehicle, Reit solves that because these are completed revenue generating fee earning projects, which must pay back what they have. I am also the chairperson of the passive fund committee at the Association of Mutual Funds in India (Amfi) and our intent was to provide a Reit product.

Also, (the index may have one-third of Reits), while our fund gives 60 per cent weightage to Reits and 40 per cent to real estate stocks in that index, so it’s not one-third Reits.

The design of the index is such that as the number of listed Reits in India goes up, their numbers will be larger, and the number of real estate stocks will come down.

Now why can’t you run a pure Reit fund? That’s because you don’t have enough listed Reits in India. There are concentration norms that (market regulator Securities and Exchange Board of India) Sebi imposes on index funds and nobody wants to buy a fund where you have 40 per cent in a single Reit. So, while you can create those kinds of structures, but it’s not wise. So, we started with 60 per cent Reits and are growing.

I must clarify that Reit is not a fixed-income instrument, as Sebi classifies it as equity. So, you are getting exposure to income-generating real estate, plus growth through real estate stocks. The index will (eventually) become 100 per cent Reit.

We have both the growth and dividend option like in other schemes. Our track record of paying dividends in funds has been reasonably good. To clarify, when the Reit pays a dividend, it’s not going to be paid back to you. It will be reinvested in the fund which is good for the investor because otherwise you are left collecting all these dividends on which you pay tax. Here there is tax deferral and there’s NAV (net asset value) compounding. For those investors who choose to seek income, we can create a dividend option, or they can exercise their right in the dividend option.

Dal-chawal means stuff that is all-weather, stuff that is not thematic or very niche. So, a flexi-cap fund, a large-and-mid-cap fund, a multi- cap fund, a hybrid fund, BAF, or any of the aggressive hybrid funds, that stands the test of time and are not cyclical constitute dal-chawal. Even your basic index funds are dal-chawal.

Depending on the investor, it will be a combination of flexi- and multi-cap kind of funds, BAF or an aggressive hybrid fund. These four-five categories are like the core dal-chawal components depending on the risk appetite. If they are more aggressive, I would go for multi-cap. If they are more conservative, I would go for BAF. All this will be the core of the portfolio.

I want to say it’s conscious, but I believe it’s organic. We are a company with meaningfully higher diversity from the financial services (segment) average. We have many women in meaningful leadership roles beyond me. The chief operating officer, head of risk, head of legal, and many more senior roles. Incidentally, what’s common to maybe all of us is that we have become mothers during our journey in this firm or recently.

A part of it is organic because I believe if you have even one or two women in the leadership, it becomes almost magnetic in some way. When you have more women, there are ideas and conversations around it. For example, right now, our focus is on making sure that our talented mid-level women get the kind of support and mentorship they need. There are frequent one-on-ones with me or others in the leadership team, so that they don’t drop out. So, some of it is organic, some of it is effort.

nidhi@outlookindia.com