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00:00 Thanks so much for tuning in.
00:01 You're watching the Mutual Fund Show.
00:02 My name is Alex Mathew.
00:04 Now, today's show is gonna be broken up into two parts.
00:08 The first part is gonna talk about
00:10 the Crystal Mutual Fund Ranking Report,
00:12 that is a quarterly report,
00:14 and we'll discuss the winners and the losers
00:16 in each of the categories
00:18 of the actively managed equity mutual fund schemes.
00:22 And in the second part,
00:23 we'll probably talk about
00:25 what you should do with that information.
00:27 But for the first part, let me introduce my guest,
00:30 Piyush Gupta, Director Funds Research
00:32 at Crystal Market Intelligence and Analytics.
00:35 Thanks so much, Piyush, for taking the time as always.
00:38 Let's start with a very brief overview
00:40 of how you construct this report.
00:43 And I'm sure that a lot of my viewers are familiar with it,
00:46 but for those that are not,
00:47 how is this report constructed?
00:50 - Yeah, so these are the rankings
00:52 that we publish on a quarterly basis,
00:56 covering about 25 odd categories.
00:59 Today, since we are talking about equity funds,
01:01 I'll talk about the methodology
01:02 that we cover for these rankings.
01:05 So in case of equity funds,
01:07 we look at combination of performance
01:09 and portfolio-based parameters.
01:12 On performance side, we look at average rolling return
01:16 to measure the performance of the fund
01:18 over the last three years.
01:20 For measuring the risk,
01:23 we use standard deviation over activity for the same period.
01:27 Apart from that, we also look at portfolio-based attributes
01:30 like diversification of the portfolio
01:33 at the company as well as sectoral level.
01:35 And also we look at the liquidity
01:37 of the underlying portfolio.
01:39 All of these parameters are combined together
01:41 with respective weights to come up with the final rankings.
01:44 - How often and how significant are the changes
01:49 normally in the rankings?
01:50 And then we'll jump straight into the rankings
01:52 for each of the schemes.
01:53 - Yeah, so on a quarter-on-quarter basis,
01:57 you wouldn't find too many changes in the rankings,
02:01 but over a period of time,
02:02 you do see a gradual movement of funds
02:05 moving either from top to bottom
02:07 or lower rank to the upper ranks.
02:10 - Fantastic.
02:11 So since we're discussing individual schemes,
02:15 let's start with the large cap first.
02:17 And I see that at the top of the list,
02:19 we've got HDFC 100 fund,
02:23 we've got ICSF 2 Blue Chip Fund
02:25 and Nippon India Large Cap as well.
02:29 What can you tell us about the reason
02:31 why these funds have ranked so high?
02:33 - Yeah, in fact, I'll cover each of these funds one by one.
02:38 So Nippon is the one which has been ranked one
02:42 for the last five quarters.
02:44 So it has consistently maintained top rank
02:46 over a period of time.
02:48 Performance, of course, is a major factor
02:51 which contributes to the top performance
02:53 or a higher rank in the equity category.
02:55 When we look at the portfolio construction,
02:59 what we see is the fund has slightly higher exposure
03:03 to small and mid-cap funds, stocks,
03:06 compared to the category.
03:08 Apart from that, its exposure to banking stocks
03:14 and lower exposure to IT stocks
03:15 has contributed to its performance.
03:19 When we look at HDFC,
03:21 it's again a fund which has been ranked one
03:23 continuously for the last three quarters.
03:26 In fact, when we look at last five quarters,
03:28 we see out of five quarters,
03:30 four quarters is when the fund has been ranked one.
03:32 This is a fund which maintains
03:36 slightly more stable portfolio,
03:38 has a lower portfolio churn in its portfolio.
03:41 When we look at the key contributor,
03:45 it's the power and financial services stocks
03:48 which has contributed to its higher performance,
03:50 thereby also having a higher rank
03:53 in this particular ranking.
03:55 ICC Blue Chip is a fund which is again ranked one
04:01 for the last five quarters continuously.
04:04 This is a fund which also maintains lower portfolio churn.
04:09 The key contributors have been
04:12 some of the large-cap stocks
04:13 where the fund has maintained higher weight
04:16 compared to the benchmark as well as the cap,
04:19 which has meant that the fund is ranked higher
04:21 in this ranking.
04:21 - Interesting, okay.
04:23 So I take the point,
04:25 and in fact, one of the points stood out to me,
04:28 which is in the Nippon Fund that you spoke about,
04:30 you said that the higher contribution
04:33 by small-cap and mid-cap,
04:35 and as we've seen, I think, over the last month or so,
04:38 and in fact, if you go back further as well,
04:41 you'll see that there's an outperformance
04:42 of the broader markets that has led to the outperformance,
04:46 of course, of the categories as well.
04:48 So it's interesting that you point that out.
04:50 Let's talk about the underperformer,
04:51 though, AXIS Blue Chip has underperformed.
04:53 Why is that?
04:54 - Yeah, so AXIS is the fund which has remained five
05:00 for quite a few number of quarters.
05:03 So this used to be a fund which used to be ranked one earlier
05:07 if you go back in the history,
05:09 but in the last one year or so,
05:11 it has remained in rank five continuously.
05:14 Now, AXIS is a fund which maintains
05:17 a slightly concentrated portfolio,
05:20 which means that the exposure
05:22 to the individual stocks is higher in the fund,
05:26 and these stocks have remained in the fund
05:28 for a long period of time,
05:29 which have also underperformed the broader market indices.
05:33 So largely, it's the higher exposure
05:37 to the poor-performing stocks.
05:40 Again, it has remained over a period of time
05:45 that has meant that the fund has not come up in the ranking.
05:49 - Okay, so that kind of covers the large-cap stocks,
05:52 and as we've seen, I think in the past,
05:54 it's a well-established fact
05:56 that it's very difficult to beat the benchmark here.
05:58 So again, I think the underlining aspect over here
06:02 is the higher contribution
06:03 from the small and mid-cap category.
06:06 But let's talk about FlexiCaps.
06:07 This is the most popular category by far
06:11 in the mutual fund industry
06:13 for actively managed equity schemes.
06:15 What can you tell us about the winners?
06:17 - Yeah, so in FlexiCap, HDFC and JM
06:21 are the top-ranked funds in this category.
06:24 While FlexiCap as a category, by definition,
06:28 they are supposed to move across market capitalization,
06:32 but at an average level, we'll find that
06:34 the funds typically have a large-cap bias.
06:38 Specifically talking about HDFC FlexiCap,
06:41 it's a fund which has again maintained rank one
06:43 for the last five consecutive quarters.
06:46 It has a large-cap bias.
06:49 Almost 82% of its exposure is into large-cap stocks.
06:53 The fund also has slightly higher concentration.
06:57 Beyond this, some of the key contributors
07:00 have been the stocks in the banking sector and PSU,
07:03 which has helped the fund in its outperformance.
07:06 When we look at JM, JM is a fund
07:09 which has come up in the ranking over the last one year.
07:12 It has been ranked one
07:13 in the last three consecutive quarters.
07:16 Its recent performance has actually helped the fund
07:19 maintain top-rank in the category.
07:21 Contrary to the HDFC fund,
07:27 this is a fund which has a slightly higher mid-cap bias
07:31 or higher mid-cap exposure compared to the category.
07:35 For this particular fund,
07:37 stocks in the banking sector
07:40 have been the key contributor for its performance.
07:43 - Do any others stand out
07:47 in terms of a dramatic underperformance?
07:49 - So, not really.
07:54 So the fund rank changes that we have seen
07:57 in the FlexiCap category has largely been one notch,
08:01 not more than that.
08:02 So the funds like PGM, Bandhan, and UTI,
08:06 which has slipped from their previous rank by one notch
08:09 in this particular quarter.
08:11 - Okay.
08:12 Now, the next couple of categories,
08:14 I think are very interesting
08:15 if you think about the amount of money
08:17 that has flowed into mid-cap as well as small-cap,
08:21 and particularly small-cap.
08:22 So let's start with small-caps first.
08:25 And what can you tell us about the reason
08:27 for the outperformance?
08:28 And I've listed out a few here.
08:30 You have the Nippon India Small-Cap Fund,
08:35 which by the way, stopped inflows, lump sum inflows,
08:38 not too long back.
08:40 What can you tell us about why it has done so well?
08:44 And what are the implications, according to you,
08:46 of the stoppage of lump sum?
08:48 - Yeah, so Nippon is a fund which was ranked two
08:54 when we go back one year back.
08:56 In the last couple of quarters,
08:58 it has moved to top three.
09:00 It has moved to top rank.
09:01 Its outperformance, especially in the two-year period,
09:05 has helped the fund to maintain top rank.
09:10 When we look at this particular fund,
09:12 over a period of time,
09:13 we'll see that there's a considerable amount
09:18 of diversification in the fund.
09:19 For example, the fund holds an average in its portfolio
09:24 when you look at month-on-month portfolio.
09:26 When you look at the category,
09:28 the average number of stocks that are held by the fund
09:30 is about 78,
09:32 which means that it's a fairly diversified portfolio,
09:36 and which has also meant that the fund also needs
09:39 to pick large number of winners
09:43 to maintain the top performance.
09:45 When I look at the fund allocation,
09:51 it's the large cap and the mid-cap
09:53 where there is a slightly higher exposure
09:56 compared to the category,
09:57 even though it's a small cap fund.
09:59 But it's the sectoral,
10:01 especially in the infrastructure,
10:02 auto and financial services,
10:04 which has helped the fund in generating superior return
10:08 compared to the category.
10:10 - Okay.
10:11 So my question is,
10:13 you clearly have liquidity as one of the criteria
10:16 on the basis of which you have your rankings.
10:19 Is that at all a concern for something like an econ
10:23 because of the kind of assets
10:26 that they hold under management close to 30,000 crore?
10:29 - Yes.
10:30 So generally large assets under management
10:33 has a negative impact on the liquidity of the fund.
10:37 When we look at Nippon small cap,
10:40 the fund is ranked three,
10:43 which is basically the middle cluster of the ranking.
10:46 So it's still not in the bottom of the ranking
10:48 as far as the liquidity is concerned.
10:51 A lot of time,
10:52 the funds manage their liquidity
10:55 by having exposure to large cap,
10:58 which is the case in this particular fund.
11:00 The fund has higher allocation to large cap,
11:03 primarily to maintain the manager liquidity position
11:06 within the portfolio.
11:07 - Okay.
11:08 But could that have bearing on performance?
11:10 - It's seen in the past,
11:17 it's the small and mid cap,
11:18 which has contributed to its performance.
11:21 So if the large caps continue to perform
11:25 weaker than the mid and small cap category,
11:27 then it can have a performance
11:28 or impact on its performance and thereby the ranking.
11:33 - All right.
11:34 Another name that stood out to me was Quant small cap.
11:36 And you've heard a lot about this table of Quant.
11:40 What can you tell us about the reason
11:41 for the outperformance of this particular scheme?
11:44 - Yeah.
11:45 So Quant across all its equity fund follow the strategy,
11:51 which is very different from a typical equity fund.
11:55 The fund of course continues to remain ranked one
11:58 for the last five consecutive quarters.
12:01 The fund also has a concentrated portfolio.
12:06 So it has a higher concentration
12:08 with higher churn in the portfolio,
12:11 continuous churn that we see in the portfolio,
12:14 which is visible in the portfolio construction.
12:16 What we have seen is we typically look at
12:19 consistent holding for the period of time.
12:22 For example, three years.
12:23 We don't find too many stocks remaining continuously
12:26 in this particular fund for a consistent period of time.
12:30 So it's largely the stock selection
12:32 in the small and mid cap category,
12:35 which has helped the fund in its performance.
12:38 And it continues to maintain that consistent performance
12:40 over a period of time.
12:42 - Okay.
12:43 Lastly, let's talk about the mid cap category.
12:45 And again, you're seeing considerable flows
12:48 into this category as well.
12:49 HDFC mid cap opportunities has outperformed
12:53 Motila Lowe's mid cap has outperformed.
12:55 What are the reasons?
12:57 - Yeah, so HDFC mid cap has actually seen improvement
13:00 in performance, especially in the last one year.
13:02 The fund was ranked three
13:04 when we go back one year in the history
13:06 and now it's ranked one.
13:08 In fact, it's also the largest fund in the category,
13:11 which also means that the fund ranks lower
13:17 on the liquidity parameter while it continues
13:19 to perform well on the return parameter.
13:21 It's also because of the recent performance
13:25 that the fund has seen improvement in the ranking.
13:27 One of the factor is its higher allocation
13:32 to small cap stocks and lower allocation
13:37 to large cap stocks, which has helped its performance
13:40 vis-a-vis the category.
13:42 Also, one of the common factor which we see
13:45 in the HDFC fund is the public sector
13:47 and the banking exposures,
13:49 which have been the key contributor
13:50 even for this particular fund.
13:52 - Okay, one of the underperformers here
13:55 is the ICICI approved mid cap fund.
13:58 What are the reasons for the downgrade this time?
14:01 - Yeah, so performance, decline in performance
14:05 is one of the key factors while it remains similar
14:08 when it comes to portfolio based parameters.
14:12 It's the return that has declined in the fund,
14:15 which has seen the decline in the ranking.
14:17 I think sectors like media, IT and oil and gas,
14:23 which were underperformers in the broader market
14:27 and where the fund had higher exposure
14:29 led to its underperformance.
14:32 - Okay, and just to close out this conversation
14:35 and reinforce the fact, this is based on your study
14:38 of performance over a period of April, May and June, correct?
14:42 - Yeah, so the ranking is carried out
14:46 for based on the performance period of three years
14:51 and portfolio construct, which is for the last three months,
14:55 which is April, May and June.
14:56 - Fantastic.
14:57 Piyush, as always an absolute pleasure speaking with you.
15:01 And I think you've given us a lot of fodder
15:03 to take into the next conversation.
15:05 So thanks so much for joining me.
15:07 - Thank you so much.
15:08 - All right, so there you have it.
15:10 The perspective from Priscille
15:12 on the rationale for the rankings that they have.
15:15 But let's understand what you're gonna do
15:17 as a retail investor when you look at that ranking.
15:20 Should you adjust your portfolio based on that?
15:23 To give you that answer, I've got Mohit Gang,
15:25 who's co-founder and chief executive officer of Moneyfront
15:28 and Juzad Gabajewala,
15:30 who is a director at Ventura Securities.
15:32 Thank you so much gentlemen for taking the time.
15:35 Juzad, I'll start with you.
15:37 So we've actually gone into a lot of detail
15:39 as to why certain schemes outperform or underperform
15:43 and ranked on the top of the pyramid,
15:45 bottom of the pyramid.
15:47 What do you as somebody that advises people
15:51 on how to get their investments done
15:54 or looks at these on a daily basis,
15:56 what do you take from this?
15:58 - So first of all, thanks Alex for having me on the show.
16:02 So it's very, very difficult
16:06 because the returns keep on changing every day.
16:09 And investors always keep on wanting to look at data
16:14 specifically when we are in the world
16:16 of overload of information.
16:19 So now it's flashed around everywhere.
16:22 So when you look at the returns,
16:27 that is the most primary thing any retail investor,
16:30 I'm talking more from a retail investor perspective,
16:33 because those are the people
16:35 who actually keep on coming to us
16:37 in terms of their investments.
16:40 So one of the simplest parameter
16:43 any investor looks at is that
16:45 what are the returns the fund has been giving him, right?
16:47 And he tries to take a decision based on that.
16:50 Now, it is for us to educate the investor
16:55 that first of all, like, what is his time horizon?
16:58 What are the time horizon he is looking at?
17:01 If he is looking at somewhere between three to five years,
17:04 then maybe a large cap can work.
17:07 But for a mid cap, he needs to have a slightly longer time duration.
17:12 A small cap, you need to have a much more longer time duration.
17:17 And whether he is in a position
17:21 to take care of the volatility, right?
17:24 Because small caps will be more volatile
17:27 than a large cap fund.
17:28 So we're trying to explain that if you have a drawdown
17:32 of this much, how will you react to it?
17:36 Because we have seen investors trying to,
17:39 you know, they panic.
17:41 They may say that they don't panic,
17:43 but they ultimately panic when the reality comes in.
17:47 Because on the upside, I can absorb any amount of profit.
17:52 The problem is always the downside.
17:53 And another thing which we also try to look at
17:57 is the consistency of the fund manager.
18:00 Because even, you know, I think because ultimately
18:03 he's the guy who runs the fund.
18:06 - Sure, sure.
18:07 So point taken, you're looking at various parameters
18:10 and it's not just the rankings is what I'm taking from that.
18:13 And of course, fit is important, right?
18:15 You need to look at your own risk profile.
18:17 But Mohit, what are your key takeaways?
18:20 You've looked at the rankings.
18:21 I think I sent the research report your way
18:24 or maybe you've already looked at it.
18:26 What is your initial reaction to it?
18:29 - Look, Alex, I think multiple agencies
18:32 have multiple parameters to rank various schemes, right?
18:36 And there is no right or wrong about it.
18:37 Everyone has a different methodology.
18:39 Everyone has a different elbow which they follow.
18:41 So out here, what I understand is they pay a huge amount
18:44 of weightage to returns.
18:46 Now those could be past returns,
18:47 those could be rolling returns.
18:48 I'm not pretty sure how the returns are taken into account.
18:51 And they have parameters of industry concentration,
18:53 company concentration and liquidity, right?
18:55 Now for right or for wrong reasons,
18:58 these are the parameters which they have taken.
19:00 There could be risk parameters
19:01 which someone could be concerned about.
19:03 And as Zuza rightly mentioned,
19:04 if you consider a risk profile of a client
19:07 and what risk parameters are the funds displaying.
19:11 So let's say, what is the Sharpe ratio of a fund
19:13 or a Sortino or a Beta of the fund?
19:15 And maybe to a certain extent,
19:17 there are software parameters like a fund manager's ability,
19:20 his track record, his longevity with the fund,
19:23 the fund house's philosophy,
19:25 what kind of track record the management does have,
19:29 plus the AM of the fund.
19:30 To my mind, it's also a significant factor.
19:33 Expense ratios, again, could be a large factor, right?
19:36 And I think those are all a few parameters
19:39 you can never possibly try and capture all of them.
19:42 There has to be a subjective layover.
19:45 Obviously, you meet with your clients,
19:47 you talk to them, you understand them,
19:49 you understand the fund and the fund house,
19:51 you mash both of them together and then dish it out.
19:54 Honestly, and I think that's where a role of an advisor
19:57 also comes into being,
19:58 that he has to try and match both the philosophies.
20:01 But nothing is completely comprehensive,
20:04 but nothing can be shunned away also,
20:05 because I'm sure they've used good parameters.
20:08 Honestly, those are great parameters which they've used.
20:10 And I think the methodology has to be given
20:13 a fair amount of recognition.
20:15 - Certainly, okay.
20:16 So to take that forward then,
20:18 Yuzur, I'll come back to you on this one.
20:21 If I'm somebody that is watching this,
20:23 and if I'm looking at, say, a scheme
20:25 in the large cap category,
20:27 if I'm looking at Axis Blue Chip,
20:29 or if I'm looking at the small cap category,
20:31 I'm looking at an SBI small cap,
20:33 and I see that it's ranked at the bottom of the pyramid.
20:36 One other aspect, of course, to remember
20:39 is that these rankings keep rotating
20:41 and winners become losers,
20:42 losers become winners over a period of time.
20:44 So how do I adjust my portfolio
20:48 or the schemes that I invest in?
20:51 How much time do I give for a scheme
20:54 that is clearly underperformed?
20:55 - So it's a very classic thing that we know.
21:01 Winners, they just keep on rotating.
21:02 So we have seen it across the board.
21:04 So not only, like, we had Axis Blue Chip
21:08 was one of the top performing funds in 1920,
21:11 and today it is at the bottom.
21:13 HDFC Top 100 had been at the bottom,
21:16 today it is at the top, right?
21:17 So ultimately, what is the underlying philosophy, right?
21:21 So important thing is that at that point of time,
21:24 you need to start,
21:25 obviously, everybody will start wondering
21:27 that why my scheme is not doing well,
21:30 and the other fund is doing well,
21:32 which was actually at the bottom of the pyramid.
21:35 So one, I think the fund house matters,
21:39 okay, to a certain extent,
21:40 that whether it has strong processes,
21:43 because we strongly believe
21:45 in everyone having as a fund process,
21:48 that is more important.
21:50 Secondly, is there a change in the fund manager?
21:54 So if you find that the fund manager
21:56 also still remains the same,
21:58 and if he has been on the top,
22:00 and today he's at the bottom,
22:02 I don't think that the philosophy
22:04 would have changed so much.
22:04 So I don't think somebody should tinker with the portfolio
22:08 just for the heck of tinkering with it, right?
22:11 And most of the time,
22:13 it also depends upon what period you're looking at,
22:16 whether are you looking at a one year tenure rank,
22:20 or whether you're looking at a three year,
22:21 or whether you're looking at a five year, right?
22:23 So the positioning will also undergo a change.
22:26 And always there is a recency bias,
22:29 because everybody wants to look at
22:32 what are the recent performance, right?
22:34 So people will talk about the one year return,
22:37 but we are talking about a three to five year time horizon.
22:41 So I think one needs to be very careful,
22:44 and just doing a transaction
22:46 for the heck of doing a transaction,
22:49 there is also a cost involved, right?
22:52 In terms of you land up paying capital gains tax.
22:55 So if you're going to pay a capital gains tax,
22:57 and then move into something else,
22:59 so that even though-
23:02 - Don't really needs to be borne in mind yet.
23:04 No, absolutely, point taken.
23:06 And I think if the fund manager is the same, right?
23:11 And if you are, you know,
23:12 - No, not that point.
23:15 Mohit, I'll throw this to you as well,
23:16 because it's important, I think,
23:18 and all of those factors are very important
23:20 that Jules has just pointed out.
23:23 But at the same time,
23:24 you have to be wary of having a dud in your portfolio,
23:26 and an underperformer in your portfolio.
23:28 So at what point do you take the information
23:31 that is available to you,
23:32 either through a personal report,
23:34 or in fact, studying it yourself?
23:36 At what point do you say,
23:37 okay, this can no longer be part of my portfolio?
23:39 - Well, no, you absolutely have to weed them out
23:42 at a certain point in time,
23:44 if they continue to show underperformance, right?
23:46 And how you define underperformance,
23:48 to my mind is again, very, very unique
23:50 to every advisor's philosophy,
23:52 and how he or she sees this entire universe, right?
23:57 For us, honestly, I think six to eight quarters
24:02 of continued underperformance,
24:05 or let's say, quarter and three,
24:07 quarter and four performance,
24:09 basically is a good enough red signal
24:12 for us to consider the merit of a fund very seriously.
24:16 One quarter, two quarters, even a year,
24:18 Alex, to be very honest, we don't even bother.
24:21 Honestly, I don't think so that's a true parameter.
24:23 And as Jose rightly mentioned,
24:26 the worst part could be looking at the past one year returns.
24:28 The recency bias factor is absolutely very high
24:31 in the minds of investors,
24:34 and that has to be done away with.
24:35 Honestly, we have seen a lot of stories,
24:37 a lot of turnaround stories and funds
24:39 where after two, three quarters
24:40 of significant underperformance,
24:41 they've suddenly shot up because the portfolio fund manager,
24:45 which had a conviction in a certain amount of stocks
24:47 and sectors, which perhaps because of cyclical nature,
24:50 or because of the rotation factor in the market,
24:53 came into play after a long while, right?
24:54 And when we judge these funds also,
24:57 which are ranked in the report,
25:00 honestly, I think most of these are,
25:02 few of them are very, very good names.
25:03 And they've had significant amount of performance
25:05 a year back or two years back,
25:06 and we're very hopeful that they will again,
25:09 see the upturn in the cycle.
25:11 So my sense is yes, eight quarters to six quarters
25:13 of consistent quartile to quartile performance
25:15 is something which warrants,
25:16 or a significant change in the objective of the fund,
25:19 the fund manager, or something in the philosophy
25:22 of the overall fund house.
25:24 Those are few red signals which would warrant
25:27 you to come out of the fund.
25:28 - Okay, now we're moving slightly beyond the topic
25:33 originally I had thought of,
25:34 and I think it's very important in the context
25:36 of the recent AMFI data that came out as well,
25:39 which is suggesting that the recency bias
25:41 that both of you gentlemen have spoken about,
25:43 is at play where a lot of money is flowing
25:45 into small caps in particular, and mid caps as well.
25:48 We've spoken about a few names that have outperformed,
25:51 underperformed, but just your closing thoughts
25:54 about what individuals should bear in mind right now,
25:56 because there is a risk that is implicit
25:59 in buying into small caps.
26:01 I want you to spell that out if you can, Juzer.
26:04 I'll start with you and then I'll come to you more.
26:06 - Yeah, so like we said, small caps are going to be
26:10 extremely volatile.
26:12 And I firmly believe that if somebody has a longer duration,
26:17 small caps should be a part of his portfolio.
26:21 But having said that, I think,
26:24 now let us look at it like that.
26:25 Today, small caps are giving a fantastic return, right?
26:29 Now what can happen going forward from here?
26:32 Either the small caps will keep on going up,
26:34 or you will have a correction
26:37 and then they will start going down, right?
26:39 So it is an ideal time to start an SIP in a small cap fund.
26:43 Okay?
26:44 You will not be able to go wrong.
26:47 Like if, let us say, for example, it goes down, right?
26:50 And I had in fact read in somewhere
26:52 where the maximum drawdown is you can lose up to 40%,
26:57 45%, right?
26:59 It can go down.
27:00 So let's assume that it goes down
27:02 and it takes around three years to recover
27:04 based on the past data.
27:06 I mean, even if it comes back to the same level,
27:09 because you're doing an SIP,
27:10 you'll actually end up making money, right?
27:13 So, and if it goes up, you're either just going to make money
27:17 but with a lump sum, if you have everything
27:19 and you think that you will sell everything
27:21 and put it in small caps, 100%, that's a bad idea.
27:25 - Okay, Mohit, last thought?
27:26 - Look, honestly, I think rally in small caps
27:31 was some bit overdue.
27:33 The valuations were very attractive a year back
27:35 or almost like nine months back
27:38 when the small cap index was actually quoting,
27:41 on a PE basis was quoting below the nifty 50 index
27:45 and even the mid cap index,
27:46 which is very rarely happened that small caps are quoting.
27:48 Small caps typically quoted a very high multiples.
27:52 That's been the trend, right?
27:54 So I think the rally was overdue.
27:56 Getting in a high speed train now could be tricky, right?
28:01 If you are a trained professional
28:04 and you can actually do that very well, yes,
28:07 more than welcome aboard.
28:09 But right now, if you get in,
28:11 I think what Jose said makes sense.
28:12 You have to go through an SIP, STP route.
28:15 Look, SIP, STP route is a universal route
28:17 for all classes, right?
28:18 So it's not just applicable for small caps or something,
28:20 but my suggestion would be
28:21 that you maintain your asset allocation.
28:24 I would still say that if you are underweight small caps,
28:27 which most of the Indian investors were a year back,
28:29 then it is always a good idea
28:32 to get the allocation to the right size.
28:34 However, because of the market movement,
28:36 if you've gone over a small cap allocations,
28:39 let's say if you were wanting to have 15% allocation
28:41 because of the market movements of 125%
28:44 it's an absolutely great idea to get it right.
28:47 Basically, if you've earned your money
28:49 and I think you should just take it off the table
28:51 and rebalance your portfolios accordingly.
28:53 Don't overdo it, but yes,
28:54 keep your portfolios aligned to your overall asset allocation.
28:58 - I love the metaphor,
28:59 but don't try to jump on a speeding train at all.
29:02 Even the professionals wouldn't do that.
29:04 And on that note, gentlemen,
29:07 thank you so much for taking the time.
29:09 Thank you so much for speaking to BQ Plan.
29:12 - Thank you.
29:12 Thank you very much for having us.
29:14 I like it.
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