Where should you park Rs 10 lakh today? Swarup Mohanty of Mirae Asset has the answer

Swarup Anand Mohanty, Vice Chairman & CEO, Mirae Asset Investment Managers (India) Pvt. Ltd.

With the stock market hitting new highs and then, small and mid-cap stocks falling sharply, where should investors park their money?

Swarup Anand Mohanty, CEO of Mirae Asset Investment Managers (India), says this depends on one’s needs. He says portfolio composition must never be based on market movements - it should be is based on your needs. If higher returns are sought, then one should go up the risk ladder, Mohanty said.

In an interview with Moneycontrol, Mohanty talked about where to invest today, whether to pause your systematic investment plans (SIP) and whether there could be outflows from small and mid-cap funds as the SEBI-mandated stress test results start getting released. Edited excerpts:

If you have Rs 10 lakh today, where would you invest it?

First of all, I cannot comment on people who have a short horizon and by that, I mean up to a five-year horizon. My horizon is longer than that because below five years, it seems impossible to even predict or say anything.

My biggest reason for investing is my retirement. Typically, my allocation is 70:30 in equity and debt. Within equity, my allocation is 40:40:20 in large-cap funds, mid-cap funds, and thematics and alternative assets.

But if I have money today and I look at the way equity markets are structured, I would like to behave differently from this allocation. At this moment, I would invest 20 percent in large caps or the Nifty 50 where I see an upside. Of the 40 percent (which I usually keep in large caps), I will put some in multi-caps because there has been correction there.

Then, 40 percent will again go into mid-cap funds as their valuations are looking better.

For the balance 20 percent, instead of doing my usual thematics and alternative assets, I will split it equally between IT and banking, especially private banking, as they are looking excellent. For any portfolio rebalancing, I will use my debt allocation, which is mostly in medium to short-term funds.

Would you recommend the same allocation to a retail investor?

Yes, I would definitely recommend the same. The only difference between how retail investors behave and what I would do is that retail investors’ recent flows have been very skewed towards small caps. Over the last two years, there has been overallocation to small caps. Now, as long as they're aware of the risks, it’s fine. But I don't invest in small caps.

To make money, they have to stop chasing returns and make their portfolio closer to their risk profile. If you are a medium-risk person, I would suggest a 40:40:20 allocation– 40 in large-cap funds, 40 in mid-cap or multi-cap funds, and 20 as a satellite portion in other good stories which either you or your advisor can decide on.

What should be the approach towards small and mid-cap funds today? Should you completely stay away from them?

A portfolio composition must never be based on market movements - it is based on your needs. If your portfolio composition demands that you need higher returns, then you should go up the risk ladder.

And while you go up the risk ladder, please always remember one thing – the statement that the higher the risk, the higher the return, should actually be the higher the risk, the higher should be the return. It is not always like that.

Now as the markets move, the composition on valuation can change. But that is where you review and rebalance.

Also read: Confused about which mutual funds to invest in? Check out MC30

Should investors pause their SIPs temporarily or at least not top them up when the stock market is at a high?

You should never pause or stop your SIP. If you need money, then you should go (redeem). That’s a separate issue.

First of all, there are two things. An SIP is a cash-flow solution, nothing else. If I'm a salaried individual, I can invest only this much per month. SIP becomes a disciplined way of participating in the market.

People who bifurcate their lump sum to form SIPs are actually market timers. You don't need to Google to know what happens to market timers. Even today, the best time to buy remains when you have the money.

If you look at such market timers who have staggered their investment over the last three years, they have only been accumulating units at higher NAVs. You stagger your investments hoping that the market will fall so you get more units, but you don't know when that will happen.

To such people, I would ask if they were checking whether their decision turned out to be right. If it works out, fantastic, back yourself more. But if it is not, what corrective action are you taking?

If the market falls, your SIPs should become more aggressive because then you start accumulating more units. Investing is a mathematical game. The more mathematical and more boring you make it, the more wealth you create. The more emotion you get into it, the less wealth you create. The choice is yours.

Are small and mid-cap funds likely to experience large outflows as the stress test results start coming out?

First of all, the stress tests will not reveal anything that an investor does not already know about the fund. The funds are not going to put out any data which is not visible to you on a monthly basis on the fact sheet. If the investor does not know what they are going to reveal, then he/she is not reading enough about his or her investments. That is fundamentally flawed. Then you need to question yourself.

Secondly, I think the risk profile of India is completely changing. While there might be a set of people with low risk profile, I do not see an adverse situation unless the fund AUM (assets under management) is too small or concentrated.

Also read: SEBI mutual fund stress test: Quant MF says smallcap fund to take 22 days for 50% liquidation

Don’t you think the stress tests, by disclosing how many days a fund will take to liquidate stocks and return investor money, will provide additional information even to a well-informed investor to act upon?

In the spirit of growing transparency, this is a step forward for the Indian mutual fund industry. The investor should realise that the reason they hire a fund manager is to mange their funds well which includes liquidity management. While this is a good data point, there is much more than these numbers that needs to be read.

Different fund houses have different fund management skills, hence it is not right to put all fund managers on one single platform based on these numbers. If the investor has concerns they should check with their respective distributors/advisors/fund house and act accordingly.

Among other asset classes, what is looking attractive?

The investor is spoilt for choice. At this moment, the Indian economy looks extremely strong. This economy is travelling towards the $6-7 trillion mark. And the best way to own this journey is through equity.

With interest rates where they are, the next three-four years can see a reversal. So, long-duration funds on the debt side will be good. In fact, even some of the FD returns are very good today.

Since there is still the backdrop of COVID and the war, and given the fragility of global data, gold will remain a good hedge at this moment not only for individuals, but even for economies. So, gold remains a good buy.

And if you ask me about the international scene, the markets, especially China, are looking extremely attractive. Everything looks in the buyers' favour, but one has to stick to their asset allocation and allocate prudently.