Despite several global worries with rising geo-political tensions between China and Taiwan and the ongoing Russia-Ukraine war, India seems to be in a good position.
Investor sentiments also seem to have turned positive with foreign portfolio investors’ (FPIs) net buying accounting for Rs 65,000 crore worth of Indian equities in the last three-and-a-half months.
SBI Mutual Fund is the country’s largest asset manager, managing investor assets worth Rs 6.47 trillion. The fund house manages money for both retail investors as well as large institutional investors. DP Singh, Deputy Managing Director and Chief Business Officer of SBI MF, who is an industry veteran and has been at SBI MF in various roles over last 24 years, tells us how investors should invest their Rs 10 lakh today. Edited excerpts:
This year has been volatile for equity markets. Should those investors sitting on the sidelines continue to wait for volatility to ease?
The benchmark index Nifty 50 has seen some dips this year, but has bounced back after every dip. So, there has not been any real correction. Investors who are waiting on the sidelines should start to make allocations to equity funds in a staggered manner. Rather than focusing on the right time to enter the markets, investors should focus on staying in the equity markets for the long term. Market volatility tends to even out over long time-frames.
Should investors go for passively or actively-managed funds within the equity category?
Investors need to first take the call whether they are ready for equity markets. Once they are clear on that, it is always better to choose an actively-managed fund, as that gives investors the possibility to generate alpha (returns in excess of benchmark returns) on their investments.
Don’t be fixated by the last one-year performance of a fund, as the fund may not necessarily be top-performing the next year. Stocks and sectors that may do well in one market cycle, may not do so well in the next market cycle. So, go with a credible fund house, with a credible fund manager.
Are market valuations expensive? Nifty 50 has declined thrice from 18,000-levels this year.
Valuations are a function of fundamentals, investor sentiment and demand. Investor sentiment on India is very upbeat, global investors are also looking at India for investments and fundamentals are also decent. Global leaders are calling this India’s century.
The government is also taking measures for domestic capex growth and increased manufacturing output. So, things are looking positive for India at the current juncture. (But) there are some global factors, due to which there is need for caution. So, invest in a staggered manner, and gradually build up your equity exposure.
First-time equity investors can start their journey with a conservative hybrid fund that invests 25 percent in equity and 75 percent in debt. And gradually increase exposure to equity over a period of time.
Name two-three risks that investors need to watch out for.
There are some geopolitical risks. If the Russia-Ukraine war extends for too long, that can be a concern. Recently, there have been some growing tensions between China and Taiwan. Oil prices have cooled off, so that is good news for India.
Also, the sanctions on Russia by Western countries seem to be favouring India as we are able to import cheaper oil from Russia. Western countries’ relationship with China has also weakened, which suits India.
Fixed deposit rates have gone up, with banks offering upwards of 7 percent on less than three-year tenure FDs. Should investors – especially seniors and those nearing retirement – look at bank FDs?
FD rates have become attractive. But, investors in high income brackets will be subject to high tax rates on their FD investments.
For such investors, debt mutual funds are good alternatives as they offer better tax-efficiency with the option of indexation and flat 20 percent tax rate on long-term capital gains (for withdrawals after three years). You also don’t need to pay any tax on interest accruals on the bonds held in your fund’s portfolio.
Within mutual funds, target maturity funds (TMFs) are a good innovation. As these are index-based funds, expense ratios are low. The only caveat is that you should be generally convinced that you can park the money in the TMF till its maturity to get returns closer to the portfolio’s yield.
TMFs are open-ended, so investors can withdraw their investment before maturity. But, investors need to be cautious as they might have to take a hit on their investment if bond yields have risen. On the other hand, if bond yields have fallen, they may benefit.
Your biggest investment mantra…
You need to have a contingency fund in place that can take care of your basic expenses for 6-12 months. This should be held in a liquid investment where there is no volatility, which you can quickly withdraw for any emergency.
A contingency fund will ensure that you are not disturbing your goal-linked investments for any unforeseen financial emergency.
How do you manage your investments? Do you have a financial planner or advisor?
It is good to have a financial planner. But, in my case I am not investing in different funds in different categories, my investments are in SBI MF’s schemes only, so I am doing it on my own.
What is your own asset allocation?
I have 80 percent in equities and 20 percent in debt. I don’t think your own house should be considered as an investment.
What is your view on real estate as investment?
Financial assets are preferable over real estate. Real estate investment should not go beyond 20 percent of your allocation. Only invest in real estate if your current networth is 10 times your annual income.
Should investors put money in IPOs?
It depends upon the capability of the individual. The efforts required to analyse a company and the efforts a fund house takes to meet the company’s management and understand its fundamentals, are not possible for retail investors. Investors could, maybe consider a fund that invests in IPOs.If you are very sure about a company and you are getting good research from a credible platform, you can bid in the IPO process. But, it is always better to go with fund managers, who have the resources to analyse companies.