40After40 Retirement Expo: Are Equity MFs A Sure-Shot Way Of Creating Wealth? Here’s What Top Experts Say

On the first day of Outlook Money’s 40After40 Retirement Expo in New Delhi, a panel discussion was held on the topic - Are equity MFs a sure-shot way of creating wealth? Top investment experts participated in the panel discussion including Anish Tawakley, Co-CIO Equity, ICICI Prudential AMC, Harsha Upadhyaya, CIO Equity and Debt, Kotak Mahindra Asset Management, Mahesh Patil, CIO-Equity, Aditya Birla Sun Life AMC and Neelesh Surana, CIO-Equity, Mirae Asset Investment Managers (India) Pvt. Ltd. The discussion was moderated by Nidhi Sinha, Editor, Outlook Money.

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Answering the question that even though investment in equities is rising consistently in India what does this increased participation in equities mean for investors, Anish Tawakley said, “It's good that equity participation is rising to the extent that people are coming with the right appetite for risk.” Aneesh added that when he sees a lot of people getting drawn in with very high valuation levels, it worries him. “Our topic is equity mutual funds - a sure-shot way of creating wealth. I feel ‘equity’ and ‘sure shot’ should not be in the same sentence anyway. He gave the example of small-cap funds saying that the market was at an extreme valuation in 2008 and if you entered small-cap space in 2008 and you held on till January 2020, that's a period of twelve years. The NSE 100 was flat over those twelve-years period, and the NSE 50 small cap was down 30 per cent over a twelve years period. “Yes, equity mutual funds are great investments over the long term, but that does not mean that if you come in at extremes and if you come in for the flavour of the month, you will necessarily do well,” he suggested saying that some amount of caution is always justified in equity investment.

“Small caps happen to be the riskiest of all stocks in the market,” the moderator agreed.

Harsha Upadhyaya, CIO Equity and Debt, Kotak Mahindra Asset Management was asked that though investors are really rising, and even the mutual funds have seen a lot of new folios, he thinks these are sticky investors and they're here for the long term, or it's just for short term?

“Investors will be from different categories, and different kind of behaviour will be seen across time periods. Those who have experienced equity markets over a long period of time and who have created reasonable wealth are the ones who believe in the power of equities and they would probably continue even with volatility. For example, those who have survived the Covid disruption, where markets fell sharply for a few months and then recovered, and they have made a lot of money from those lows. If anybody had invested pre-Covid and those who stayed during that disruption probably would continue, because they know that even once in a lifetime that kind of a disruption has not led to erosion in their wealth.

“The other set is those who are on a disciplined way, and continue to invest on a monthly basis through SIPs. Their experience is also likely to be better than those who take large calls in terms of entering and exiting markets at different points in time. Since they invest on a regular basis, the volatility is kind of taken care of through their time of investments. Those people also generally tend to be more long-term as compared to others.

“The only segment which is probably vulnerable for market shocks, and hence probably could move out of equities for some time, if at all it happens, would be those who have come in the past three and a half years, for example, because markets have been a one-way market. Markets are never like this, but they have been like that for the last three to four years. Whichever point you have invested money, you have generally made money, they have not experienced negative returns, they have not experienced volatility and even if they encounter one such episode, whether all of them will still remain in the markets or not is something that we have to wait and see.

But by and large, SIP investors and those who have seen one or two crises during their investment horizon should continue to remain invested in equity, this is what we see from the data and the behaviour in past some time.

Nidhi Sinha asked Mahesh Patil, CIO-Equity, Aditya Birla Sun Life AMC to explain the concept of risk-reward, especially for the younger population and even the seasoned ones who have just started investing. “Equities are volatile. There could be periods where they can give negative returns. But as you increase the time horizon in the market, the risk of negative returns goes down. Coming to the risk-return tradeoff - the higher the risk in any particular asset class, the long-term returns there would be better than other asset classes. So, investors looking at investing in various asset classes should understand the risk-return tradeoff, which is there. Normally investors just look at the returns and there is little disregard for risk.

“The other way to do that to diversify. When equities go up, you would see probably debt returns to be negative. Gold also as an asset class adds to diversification, especially during any geopolitical risk, it tends to do better. So, diversifying across asset classes, will enable investors to increase the overall risk-adjusted returns because of the coherent nature of various asset classes.”

Neelesh Surana, CIO-Equity, Mirae Asset Investment Managers (India) Pvt. Ltd. was asked about the index funds and why they are considered as the simplest way of creating wealth. Surana said, “First of all Indian markets have done well over a long-period of time. Index was launched in 1979 and 100 index is now actually at 85,000. We're talking about 15-16 per cent compounding because the GDP is growing.”

“Mutual fund obviously is one of the best products for retail investors, participate for longer term. Index Fund does make a lot of sense.”