‘Invest regularly with long-term horizon, have patience’

NS Vageesh Mumbai | Updated on January 15, 2018


Swati Kulkarni, Executive Vice-President and Fund Manager, UTI Mutual Fund, conveys a sense of calm with her quiet demeanour, unruffled by the slings and swings of the market — qualities that you desire in someone who is managing your funds. She is precise in her choice of words and backs her argument with logic.

Be patient, she advises and cites the non-linear returns provided by equities to highlight the virtues of sticking with your investments just when you want to throw in the towel. Excerpts:

With so many fund schemes available, how does an investor start out and take the first step?

Take a simple pyramid approach. First, find out what are your financial obligations. Understand that for long-term obligations you need an asset class that will deliver in the long term and that is inflation-beating. For instance, in education, inflation is far higher than normal CPI. Travel inflation is dropping because of competition. But medical expenses inflation is high — of the order of 15 per cent. From that perspective, I think inflation-beating returns is important.

Then, make your allocations. Start with, say, 60 per cent allocation for equity, given financial obligations. This is much beyond the average Indian middle class exposure who have between 10 and 20 per cent in equity. There you should look for balanced funds — which give you 60:40 distribution between equity and debt. At least 50 per cent of the equity allocation should be in large-cap funds — since they are less volatile. In India, these funds are able to generate alpha (returns above the benchmark index), so it is useful to put money there to be able to get better returns. Between 20 and 30 per cent, based on your appetite, should be in mid-cap funds.

Then the balance you can put in thematic funds, for example, an infra or pharma or logistics or MNC fund. Some thematic funds should be to top up. That should be the pyramid approach.

What is the methodology for selecting the right scheme in large-cap funds?

Studies have shown that no fund remains at the top all the time, because your strategy may not work all the time. Others are also running with you. It is not a sprint. It is a long marathon, when you invest. You are not investing for six months. So, stick to people and fund houses that can invest in research and deliver steady returns. For instance, in the Mastershare scheme, I have always looked for structural long-term investment ideas, rather than chasing momentum or going for short-term tactical opportunities. For those who don’t like volatility some allocation to balanced funds is good.

How long should one remain invested?

When your horizon is long, keep it flexible. If you look at the period between 2000 to 2003, I may not have made much money, but in 2006, I would have been the best asset allocator. Equity always gives non-linear return and, therefore, you should have the patience to take the fruits. If you lose patience, you will come out early and never be able to catch it. Timing is not important, but invest regularly. SIP is a good way to start.

What is your outlook on earnings this quarter?

Earnings have disappointed for the last several quarters, though there was some improvement in the last two quarters. The pace of downgrade has come down. So, 7 per cent was the average downgrade for the last few quarters and that has come down to 1.5 per cent. That is one good sign. Expectations are also moderating. But, having said that, for FY18, the earnings growth expectation of 20 per cent looks on the higher side. The impact of good monsoons, rural roads construction and spending on economic mobilisation will be felt soon. We think the second half will be better than the first.

If you stick with stocks for long, how do you cope with disruption by technology trends? Say, by trends in driverless or electric cars or by new banking institutions or even by non-renewable energy sources?

Yes, when I say we invest for the long term, it does not mean we forget about it. We will be looking out for changes — say, for instance, payments banks in the banking space. Existing banks have also made huge investments. If you have a franchise that is well entrenched and you are with the market, that’s not a threat. You are talking of expansion of market. For instance, because of the Jan Dhan scheme — many unbanked persons have come into the system.

If you take the automobile space, say driverless cars or electric cars, these are niche segments. Unless the ecosystem develops around it, and various hindrances (battery, for instance), come to a competitive price, they may remain niches. I don’t have to act immediately on this, but we will keep an eye on them.

Published on November 03, 2016

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