Always seek the advice of professional mutual fund managers and invest in those funds that have been consistent performers over the last 10-20 years, and have generated money in good and bad times, says Madhu Kela, Chief Investment Strategist, Reliance Capital.
Mutual funds are the best vehicles for new investors looking to put money in the stock market, says Madhu Kela, Chief Investment Strategist, Reliance Capital.
“If you feel you have missed the rally and have seen someone make money, do not be nervous because this is only a trailer, the whole picture is yet to come. So it is never a wrong time or bad time – invest methodically, systematically – consult a proper person who has been advising on wealth management – then invest money- have faith in India, have faith in market,’’ adding that the money invested should be for a longer timeframe – one will be surprised at the good returns.
When you invest in a mutual fund, you hand over the job of investing to a professional which is better than investing based on someone’s tips, said Kela in an interview to CNBC-TV18.
Moreover, while investing outside of MFs you are trying to time the market which his very difficult but MFs by force are 95 percent invested in all periods of market and the portfolio is well diversified. Also at any given time investment is done in 40-50 companies so even if something goes wrong with one or two companies other investments remain safe.
According to him, now the MF industry and the fund managers have matured and along with that the investors also have matured, for example now if there is a fall in the market, investors instead of panicking think it as an investment opportunity.
“India no longer remains a story to be discovered, it has already been discovered,” he adds.
When asked where he saw the market now post the 1000-point rally over the last one month or so, he says the golden rule of investing is, never ask 'what and when to buy' but just ask 'what to buy' and 'for how long to buy' and always use corrections to buy for the long-term term. Market may continue to see time to time correction, he adds.
Sector specific, he thinks the pharma space is getting interesting again. The valuations there are reasonable as compared to the where the market is but be selective.
According to him, the IT sector too need not be too worried about Trump policies because ultimately he is a business man.
With regards to real estate, he thinks Budget is good for affordable housing, so be selective in that space.
Always seek the advice of professional mutual fund managers and invest in those funds that have been consistent performers over the last 10-20 years, and have delivered returns in good and bad times.
Below is the verbatim transcript of Madhu Kela's interview to Varinder Bansal on CNBC-TV18
Q: Investing individually in a stock versus investing via mutual funds. What has your experience taught you?
A: If you are a layman investor and not tracking the market on a very professional basis and you know a lot of people who are doctors, lawyers, small business people, rather than depending on tips like someone will tell me when to buy or sell, in life there is never that perfection. So, you know that when you invest in a mutual fund and remain invested for a long period of time, you have actually handed over that job to proven professionals, that is one.
Second thing is when you are investing in individual companies, there will always be somebody who will tell you this will fall and then you buy or when this rises, sell. This is one slip you put, whatever money you want to put, your money gets invested at one stretch. One slip you put, whenever you want the money, the money gets out.
And over a period of time, when you are investing money on an individual basis, a lot of time you are trying to time the entry into market, you are trying to time the entry into individual companies. In real life of my 12-15 year experience, it does not happen, whenever we want to time it.
So, mutual funds by force are invested 90-95 percent in all periods of market and they are diversified, so you have 30-50 companies. If something goes wrong in 1-2 companies, something goes right in 1-2 companies, that is why you see the kind of compounding which has happened. So if you are a trader, you want to do the market, if you have the professional expertise, that is a different thing all together. If you are a 100 percent professional investor who is only doing this for a living, that is a different category.
But a majority of the people, who are in the market, who want to put their money to save and to grow, for them mutual fund is the best vehicle.
Q: So, is there any anecdotal evidence which tells me as a retail investor that my money put in a mutual fund is better than other asset classes in the last few years?
A: You look at the net asset value (NAV). There is no comparison. I am saying when you compare to fixed deposit, when you compare to gold, when you compare to any kind of fixed income, you compare even to property, if you take a time frame of 20 years. For instance, Reliance growth for an NAV was Rs 10 in 1996, it was Rs 12 when I joined in 2001-2002 and now it is Rs 950. Count the number of times.
Reliance Banking Fund we started 10 years back is now up 20 times. So, trust me, there is no comparison and it is tax free. So, there are anecdotal evidences of beating any kind of return, individual great companies.
Q: How do retail investors choose a good equity fund because there are so many equity funds which are there in the market? As you said, most of them have done well. But when it comes to many funds, a retailer investor always thinks about which one to go.
A: There are a lot of professional distributers who are there, who have accumulated knowledge of 10-20 years to help you choose a right fund. Otherwise, if you are not using any of them, you have to keep it very simple. You go with the top 3-4 names with 10-20 year track record of history. It should not happen that you have 30-40 mutual funds in your portfolio. Then it is better that you have 30-40 stocks. So, you should have, regardless of what your portfolio is, maybe 8-10 schemes over a period of time and depending on what the theme and depending on what is going to play out, but I have generally seen people who have stuck on two diversified funds and have remained stuck for a lot of their mutual fund allocation are the people who have actually done well.
Q: In your career, what changes have you seen in the mutual fund industry? Now we have Rs 4,000 crore of systematic investment plans (SIP) money coming every month, Rs 17-17.5 lakh crore assets under management.
A: The size has become different. When we came in, our total equity funds were Rs 12 crore; Reliance Growth Fund and Reliance Mutual Fund put together was Rs 12 crore in 2001-2002. Today, we have Rs 50,000-60,000 crore, our equity corpus. It all happened in 12-14 years. So, I think everything has changed. Plus, the most important thing now there are a lot of professional people who are available. First it was only 1964, UTI. Then came the private sector mutual fund and now last 20 years there are a lot of good professional managers who have come over a period of time, they have committed their share of mistakes because as they say experience teaches you a lot of things in the market. So, they have committed their share of mistakes.
I think industry has matured, the fund managers have matured, and I would say even the investors have natured. Previously, I remember when we were doing earlier rounds of mutual funds, whenever there was a 500-1,000 point decline, there was a panic in the minds of retail investor. Now, people are looking at as an opportunity, so, even in a space like demonetisation, you saw that a lot of money came in even in that period because people know that this is a real opportunity to hook on to investing into markets, into mutual fund because India story is no longer to be discovered. It is already discovered, so, only the hiccups like this. Distributors have become very smart, I would say investors have become very smart and fund managers over a period of time because of the experience have become seasoned and I am sure now the best is yet to come over the next decade or so.
Q: What needs to be done by the mutual fund industry in order to tap the un-tapped potential which is still existing in India?
A: It is a humungous potential. I think the only thing is once people have now made money by investing, that is what will percolate the culture. SIP has become a big product and I am sure as it has happened worldwide, so, it is only the whole industry whether it is corporates or exchanges, or the ministry or the mutual fund companies, or the media companies, all of us have to work together to create that buzz, to create that awareness, to create the education to the investors that this is available to you at a click of a button, for 1 percent charge.
Q: You have taken a great initiative in this mutual fund day which is coming.
A: It is a big thing and we are very convinced that this is going to be the biggest thing in times to come because you see the size of mutual fund industry in India and the size of mutual fund industry whether you compare to GDP or whether you compare to any other data, there are miles and miles to go before saturation is going to come.
Q: 1,000 points rally in Nifty, where do you stand now in terms of your view on the entire markets?
A: As I said, I was on your channel, 8,000 that this is the time to buy. We blipped for 200 points and the markets may see from time to time correction. My only message is for the retail investors, ask the right question, don’t ask what to buy and when to buy, you should ask how much to buy and for how long you must buy it. So, when you want to buy a lot, when you want to buy for a longer period of time, then you would want the market to correct a little bit and use that correction to enter in the market.
Market for a longer period of time, they are just fine, there are individual companies which are delivering sterling performance and last two years, even though you do not see this in the index, but you see what individual companies have done and I continue to remain positive on individual stock investing.
Q: Pharmaceutical, you are considered one of the kings of pharmaceutical, are you disappointed with whatever is happening?
A: I would say that that sector is starting to look interesting now because the valuations are definitely in favour. There is a lot of fear which is there like people are thinking all the manufacturing will shift to America. For any pharmaceutical company whether it is generic or otherwise, to go and setup a plant and to produce a drug, it takes minimum four to five years of cycle time because you setup a plant, you get the plant approved by FDA, then you file drug from the plant, then you get those drugs approved from FDA, so, it is not some trading company which can just shift its base. So, I think there is a lot of pessimism which is being surrounded in this sector. Valuations have come to reasonable level as compared to where the markets are also, so, I would say selectively it is an opportunity to buy.
Q: IT and Trump?
A: I think it again -- we have to see but I do not think it is going to be as -- see what you saw yesterday, Trump, there was so much talk about border tax. Yesterday was his speech in front of Congress and not even a word which he has mentioned. I think we have to give it to him, finally he is a businessman, and he will not do something which will disrupt either the global markets or the American markets. I am just hoping that there is a lot of talk, there is a lot of nervousness but the end result may not be as bad as the nervousness is and that is what it is being showing up in the markets worldwide.
Q: There was a lot of fear in the market when demonetisation happened but now the results coming in, the GDP numbers coming in, all seems normal. What is your view on that?
A: My view was very clear that demonetisation is a thing which has given you an opportunity to invest. I think people will not even remember that demonetisation happened six months down the line.
Q: Real estate, you said that that could be a sector which could be the dark horse going ahead. Do you still maintain that view?
A: The Budget was very good for affordable housing companies, so, select companies there is a lot of value. These companies are down 70-90 percent from their peak of 2007-2008, a lot of people have worked extremely hard to clean out the balance sheet. So, even though real estate sector is 0.5 percent in the overall index, but on a selective basis you will have opportunity.
Let us take this opportunity to ensure that we are communicating the right message on the mutual fund day, all this sector selection, stock selection are for the professional investors. If you are a common man who has 9-5 some other job, it is best that you leave money with mutual funds who have a track record of 10-20 years of going in a good market or bad market and consistently generating return.
Q: I am also told that the fees charged by the mutual fund industry in India is one of the lowest, we only pay 1.5-2 percent.
A: It is the lowest, not one of the lowest, it is the lowest. There are a lot of people who have a track record of wealth creation, who have a track record of doing the market, generating money in good and bad times.
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