For the average person on the street, the name Neeraj Choksi may not ring a bell. But he is a giant in the Rs 36 trillion Indian mutual funds (MF) industry. Along with Jignesh Desai, he co-founded NJ India Invest, a financial products’ distribution firm, in 1994. Today, the firm is India’s largest mutual fund distributor, managing assets worth Rs 1.09 trillion in 2021-22, per Prime MF database.
If NJ India Invest was a mutual fund house, it would be India’s 10th largest. To be sure, the company does have a mutual fund of its own, launched in 2021. In 2021-22, NJ India Invest earned distributor commissions to the tune of Rs 1,298.58 crore; the highest among all mutual fund distributors in India. The firm deploys a large network of sub-distributors in its network; around 27,000 active distributors.
Choksi believes that despite the volatility in equity markets, this is a good time to enter. In fact, he adds, any time is a good time to enter because it is impossible to time the markets. Moneycontrol asked Choksi where he believes investors should invest Rs 10 lakh today. Excerpts from that interaction follow:
Is this a good time for a completely fresh and novice investor to enter equity markets?
It’s not possible to time the markets. Ascertain your asset allocation. But do not let it be driven by markets. When you ascertain your asset allocation, take a look at your risk tolerance. This means, if markets go down and continue to slide, how much can you tolerate? If you haven’t ever invested in equities — or are in your first or second job — and want to invest in equities, invest slowly. Have more in debt funds and start your equity investments with smaller amounts. Then, you can slowly increase your equity investments.
How long should investors keep their money in equity? Is it okay to sell equities before three years?
The longer your holding period, the better. Stay invested in equities for at least five years. Then, the probability of losing money goes down.
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How frequently should you change your asset allocation? Suppose I decide to keep 70 percent in equities and 30 percent in debt investments, and if the equity market goes up, do I have to rebalance every month?
It is fine to rebalance once every six months or even once a year. Rebalancing every month becomes too much of a hassle and is not required.
What type of equity funds do you recommend in these times?
Irrespective of the times, it is always better to invest in a Flexicap fund. However, one may diversify across styles and market caps based on individual risk profiles.
Aside from equity and debt, are there any other asset classes you’d recommend to investors?
Other asset classes would include gold, real estate and commodities.
Gold is available as a financial asset, thanks to gold exchange-traded funds, gold mutual funds, and sovereign gold bonds. But real estate and commodities are not yet available as financial assets. Commodities are very cyclical in nature, so it’s hard to enter and exit at the right time.
Real-estate is illiquid. So, there are challenges in investing in real estate as well.
Gold is more of a store of value. I wouldn’t recommend investing in gold in a big way, but you could hold a small value of your portfolio in gold.
How many mutual fund schemes should we ideally have in our portfolios? Many investors have been seen holding as many 30, 50 or even as many as 80 schemes in their portfolios.
No, you should not hold so many mutual fund schemes. Just 4-5 schemes are enough.
The key is to have a diversified portfolio. Instead of diversifying by number of schemes, diversify by scheme management styles. For instance, diversify between large-cap, mid-cap funds, active funds, smart-beta funds and so on. That way, the portfolios of your schemes would not overlap.
Mutual funds have started to launch new fund offers (NFO). Should an investor even look at one, when there are so many existing funds around?More than whether it is a new or an existing fund, look at whether the scheme meets your objectives.
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Moreover, today if a new fund house gets launched, it will launch its basic set of schemes. These may not be novel ideas. But that is still acceptable. On the other hand, if an existing fund house already has a bouquet of schemes, and has launched yet another one, I wonder what value it might offer.
Eventually, look at the fund house’s investment process, the people running the fund house and managing the schemes and so on. If the scheme is appealing, it doesn’t matter if it is a new scheme or not.
Interest rates are high and experts predict they will rise further. Do you recommend investments in debt funds now?
It’s always best to not take too much risk in your debt investments. For instance, many fund houses have dynamic bond funds. These funds alter the duration of their portfolios, by switching between short-term and long-term debt instruments. But we’ve observed over the last 30 years that it’s very difficult for a fund manager to consistently predict interest rates right.
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The key to make the most out of debt fund investments is to match our time horizon with the fund’s duration. That way we negate the interest rates risks.
Credit risk funds seem to be on some investors’ radar. It's been two years since the Franklin Templeton crisis and debt funds have been cleaning up their books. Do you think it’s safe to invest in credit risk funds again?
We were never into credit risk funds. Even before the Franklin Templeton credit risk crisis, we had never recommended credit risk funds. They are too risky.
The risk path in your portfolio should always be through equities, instead of credit risk funds or any other debt funds.