Feroze Azeez of Anand Rathi Private Wealth Management shared his views on various types of mutual funds and how one should select a mutual fund to meet his investment needs.
In an interview to CNBC-TV18, Feroze Azeez of Anand Rathi Private Wealth Management spoke about how investors should approach mutual funds. He also explained which categories of fixed income MFs or balanced funds will fetch more benefits to investors.
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Below is a verbatim transcript of the interview:
Q: There is lots of advice on equity, but now that there is a bond rally and we had some bond experts telling us earlier in the show that even after giving a 14 percent return year-to-date (YTD) or probably year-on-year (Y-o-Y), bonds still look good for a 10-12 percent rally. How should an investor approach mutual funds (MFs)? Which category of fixed income MFs or balanced funds should an investor buy? Where are the gains?
A: That is a very pertinent question. As we have had rallies on both the markets today, I think MF investor who has stayed invested in the bond fund has made decent returns. There are a lot of clients who are outside the bond market and who have not participated who are asking this question saying what should I do going forward? It is very critical to understand that the interest rates in the country are headed southwards. It is only that there are going to be pockets of faster returns, which will come but the direction is southwards. Reserve Bank of India (RBI) has indicated but of course will have pauses of rate cut but will directionally have a rate cut movement downwards.
Coming to the point of how somebody should capitalize upon this view by investing in MFs? A guy who is there in an MF should look at dynamic bond funds moreso because there has been a substantial portion of the rally, which is behind us. So, there is some more rally, which is expected as rightly put across by so many other analysts that there is 10-12 percent rally, he should look at dynamic bond funds.
These dynamic bond funds move from a long-dated bond to short-dated bond depending on the fund managers' view. If it was about six months back then I would say going for a long-dated bond would have made sense. Having said that, now that we have a lot of rally already taken place, it is very critical that you look at the dynamic bond fund category.
Now looking at which fund should you choose in the dynamic bond category, there are two funds which you should seriously look at which is the IDFC Dynamic Bond Fund and then the SBI Dynamic Bond Fund. Both these bond funds have explicitly expressed or indicated or have showcased a very good movement in the bond market just being ahead of the curve, have captured the rally. So these are the two funds, which I would recommend and the category that I would recommend would be the dynamic bond funds.
Q: Could you tell us in the last one-two years what the return has been on this IDFC Dynamic Bond Fund as well as SBI Dynamic Bond Fund?
A: Yes, these two funds have been able to generate upwards of 12-13 percent over the last two years. Having said that, it is very critical to understand that there has been good performance on the back of a good rally. So somebody who is getting into a dynamic bond fund can expect about a double-digit return and anyways these mutual funds have indexation benefit. So stock efficiency is a given. That is what I think you should expect.
Q: I want to seek a financial advice for my 16-year-old daughter for a period of the next five years pertaining to education? I would need this money when she is around 22-23 years old?
A: So assuming that you have four-five years, the first thing is you need to plan these four-five years and the money, which you have kept for her education and try and see how are these pieces adding up.
The first step, which anybody should take up is that understand what is the future value of the goal you have i.e. whatever is the present value of that education you try and adjust it to inflation and see at the end of five-six years from now what would be the value of that education. If Rs 10 lakhs is the value, your multiple would be around 1.44 assuming there is five-six years more 1.44-1.5. So, if you have objective of Rs 10 lakhs, you will need Rs 14.5-Rs 15 lakhs at the end of five-six years. So get a grip on what you will need.
The second step is you have to try and see how much of monthly Systematic Investment Plan (SIP) you will have to do. Assuming that your goal is four-five years from now for every Rs 1 lakh of your future value expectation, you will need a Rs 1,700 SIP per month if you do not have substantial portions already saved.
The third step is to try and see how do I make sure that the growth expectation in the SIP, which could be between 12-13 percent that is expected, is delivered and the probability of that delivery goes up significantly. So you will have to make sure in the step three you get your asset allocation right more or less and the schemes right.
So my suggestion to you because its about five years almost ahead, you can take a marginal equity exposure, but not a substantial one. About 20 percent in the equity funds and about 80 percent in debt funds should do the trick more or less.
Coming to the next part of what scheme should you specifically choose. On the equity side you should look at ICICI Focused Bluechip Fund, which is a largecap fund. Since, the period is not too long, I am suggesting you a largecap fund.
Then go into the second, which is the debt portion. It should be in dynamic bond funds. The two dynamic bond funds, which I think, have always beaten the market in terms of going ahead and picking up the right portion of the yield curve are IDFC Dynamic Bond Fund and the SBI Dynamic Bond Fund. It will require very little monitoring, which should get you to the objective which you have.