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00:00 mutual fund show. I'm Neeraj Shah. The next 20 minutes, we'll talk about two key aspects of
00:04 mutual funds. Our guest today, Mrin Agarwal, financial educator and founder of FinSafe India
00:08 and Rushabh Desai, founder of Rupee with Rushabh Investment Services. Both of you, thank you so
00:13 much for taking the time out. Now, before I get my guests on the show, here's a statistic that I got
00:18 from a tweet that came in from Mihir Vora. Mid-cap and small-cap fund assets at 23% of mutual fund
00:25 equity assets are now greater than the large-cap fund assets, which stand at circa 15%. And also
00:31 larger than the largest category of equity funds, which is flexi-cap funds, which is about 15% as
00:36 well. Inflows of 6,800 crores in August. And frankly, if you look at the last few months,
00:41 you would notice that even if they may not-- at times, they have been the largest money gatherers,
00:46 and at times, they might not have been. But the flow of money into mid-cap and small-cap funds
00:51 has been very, very strong. And that brings to light the quant of money chasing a set of stocks
01:00 which are not the largest constituents of market cap. In fact, about 70% of the total pool is large
01:09 caps, and 30% is mid-caps and small-caps. So therefore, it becomes pertinent at that point
01:14 of time when the nifties at 20,000 in the mid-caps and small-caps have rallied even more to try and
01:18 understand what to do with your mid-cap and small-cap funds. Should you be aggressive? Should
01:22 you stick to the path of an SIP? Or should you even take the step of timing the market? And that's
01:29 what I'm going to ask both of our experts to do. Mirind, I'll start off with you ladies first,
01:33 as always. How do you look at either existing investments or current-- or coming up investments
01:42 into mid-cap and small-cap funds, considering that not just that the nifties at 20,000, which
01:47 it can be because it can be at 30,000 in some years down the line, but the fact that there's
01:50 been a very stupendous rally in the mid-cap and small-cap spaces in the last three or four months?
01:55 So good afternoon, Neeraj, and it's always lovely to be here. I think as always, when we see markets
02:04 rallying, we also see a lot of trend chasing happening. And I think that's exactly what's
02:09 played out this time, where there's been a lot of trend chasing on investing in small-caps and
02:15 mid-caps. And well, I mean, I'm happy to see that. But the only thing that worries me is that,
02:23 is this money really in for the long term? Or is it just trying to capitalize on some
02:28 short-term market moves? And so I think for all of those investors who have invested already in
02:36 this space, whether it's a few years back or whether it is recently, of course, my advice
02:41 would always be that have the right time frame of investment. And typically for mid-caps and
02:47 small-caps, we do advise to have at least 10 years of holding horizon, right? So if you've just
02:53 entered in the last couple of months, you still have a long way to go. And don't look at this as
02:58 a quick money-making mechanism, because honestly, I think the reinvestment risk is going to be quite
03:03 high. I mean, I don't think that it's going to be easy to say that, okay, I'll quickly exit,
03:09 and then I'll just go and put my money somewhere else, right? So I think that's what investors need
03:14 to be really cautious about. And also new investors who are looking at this space, because
03:19 they're seeing the recent performance, need to keep the same aspect in mind that have the 10-year
03:25 holding horizon. And remember that these mid-caps and small-caps can be extremely volatile. So
03:32 are you ready to face this risk or not, is another aspect that you need to consider.
03:39 Hmm. Rushabh, I'm sure you're armed with data. I'm wanting to hear what is it that you are
03:46 thinking of when it comes to investing in mid-caps and small-cap funds, and is it prudent to take
03:50 some risk off the table or not necessarily? Neeraj, first of all, good afternoon. Thank
03:56 you for having me on the show. See, currently, to put it very simply, we are not in a bubble,
04:03 at least at this point of time. Definitely, yes, markets are expensive, okay? But let's try and
04:09 understand that this rally we have seen in the past six, seven months, this has come after a
04:15 long time correction. We have had a time correction of around 18 to 20 months. After that, we have
04:20 seen this kind of rally. Definitely, valuations are very expensive at this point of time.
04:26 Mid-caps have rallied way ahead than even small-caps as well. So mid-caps is higher expensive
04:33 than small-cap and then large-caps. So in my view, this is a time to be cautious for sure.
04:40 I'm not recommending any of my clients to invest a lonesome amount of money in the mid- and
04:46 small-cap space. But currently, who have their sips on, they should not stop their sips who have
04:53 a longer time horizon. As Miriam correctly said, seven to 10 years is the ideal time frame for
04:59 the mid- and small-cap space. But see, when you're investing in SIP kind of methodology,
05:06 you're investing at the top as well as the bottom and you're averaging over the longest period of
05:11 time. So definitely, this is a time to be cautious in the mid- and small-cap space.
05:17 No lonesome, but definitely, the sips should continue. There should be no stoppage in the sips.
05:22 But Rishabh, let's assume-- so I don't want to stretch a point which both of you anyways believe
05:29 and are on one side. And maybe from a long-term perspective, trying to time the market tactically
05:37 may not necessarily be the richest dividend. So let's assume that it's a good idea to not stop
05:42 the systematic investment plans. And if you're doing lonesome, if you want to, please be moderate.
05:47 Ideally, both our experts are telling their clients not to necessarily go lonesome,
05:51 but continue with the sips. So Rishabh, I'll come back to you.
05:54 What funds can one look at within that pocket? Now, the leeway that I'm giving you, Rishabh,
06:02 right now is to not just try and focus on, say, small-cap funds or mid-cap funds or a combination
06:08 of those, but even if there are funds which have got a higher bend towards the broader end of the
06:12 spectrum and also have some bit of safety by the large caps, which could possibly be multi-cap
06:17 funds or flexi-cap funds with a higher bend towards the mid- and small-cap space. What are
06:21 the funds? One standard disclosure, viewers, this need not be an exhaustive answer. This could be
06:26 indicative replies by both Rishabh as well as me. Rishabh, I'll come to you first.
06:30 Neeraj, as you correctly said, margin of safety is very important, especially when you're
06:36 investing in the equity markets. I mean, you don't see when a client or when an investor
06:40 invests in the equity markets, they are always going to expect higher kind of returns. So it's
06:46 very important. Although, see, it's again, I tell this on most platforms that you cannot predict the
06:52 markets, right? But we can definitely time the markets, right? When the markets fall, say,
06:57 like 10%, 20% or so with the fall in the valuation, that's the right time to venture into the markets,
07:03 right? So in my view, currently, you know, the large caps, all three segments, the valuations
07:09 have inched above their 10-year average. So they are definitely expensive. But in my view, you know,
07:15 the large caps have a lot of catching up to do compared to the mid and small caps. The mid and
07:20 small caps have rallied quite a lot. So in my view, rather than going into a multi-cap, because
07:24 in a multi-cap, you know, you're investing, again, you're investing 50%. You are supposed to invest
07:29 25% each in large, mid and small. So you're investing 50% in mid and small caps minimum,
07:37 right? So in my view, I would bet on a flexi-cap strategy because in the flexi-cap strategies,
07:42 on an average, we have seen fund managers and AMCs maintaining anywhere between 50% to 80%
07:49 large caps at this point of time. So in my view, if someone wants to venture, I would say a flexi-cap
07:56 strategy or a focus fund or flexi-cap funds would be a better bet than a multi-cap.
08:01 Any names out there of any particular schemes that people can look at? These
08:06 are not necessarily the recommendations. So Parag Parekh flexi-cap fund is something
08:12 what we really like. Our second flexi-cap fund is Canada Rebecca Flexi-Cap Fund. So these are
08:17 the two funds what investors can look at at this point of time. Okay. Venn, your answer could be
08:22 different from Rishabh, but how are you thinking about funds at the broader end of the spectrum?
08:27 Which ones stand out and why? Yeah, so I agree with what Rishabh has said. And I think we are
08:35 also going to see some bit of sector rotation as well. And I think an all-season portfolio always
08:42 has a good allocation to large, small and mid-cap. So if you've already done the small and mid-cap,
08:47 then of course, you could take large-cap allocation through a simple Nifty-fifty index fund,
08:53 or you could do it through an actively managed flexi-cap fund, as Rishabh said. So I would say
09:00 that yes, look at these two categories then. Okay. And any particular funds that or schemes
09:04 that people should watch out for? Well, I like the ICICI Nifty-fifty index fund. And again,
09:11 on the flexi-cap side, I like Parag Parekh flexi-cap fund. I like Kotak as well. So I think
09:17 these are some funds that people can consider. Pretty interesting. The last three years,
09:21 almost every advisor's one of the favorite flexi-cap funds is the Parag Parekh fund. I
09:27 have heard nobody who does not like that scheme. Well, and they're doing some good work. Okay.
09:33 Let's move on from the mid-cap and small-cap conversation. Remember, viewers, a bunch of our
09:39 talking point conversations also talk about what to do with some of those stocks. So you'll get
09:43 a plenty of ammo if you just look at some of the shows that we've done on BQ Prime in the last
09:48 three days on what to do with your mid-cap and small-cap allocations, whether in funds,
09:52 as we'll discuss right now, as we have discussed right now, or on specific stocks,
09:56 as we've discussed on the previous shows. Now, there are a bunch of,
10:00 you know, two kinds of funds are seeing a lot of NFOs or launches. One, very recently or ongoing,
10:10 is this whole multi-asset funds, which are seeing a slew of products out there coming up.
10:15 And sometime in the next two weeks, viewers, we'll try and talk about those as well. Today,
10:19 we're talking about thematic funds, which saw launches happen in the last 45 days. So if I'm
10:26 not wrong, and I'm going to be wrong by a week or two weeks here and there, but let's say in the
10:30 last two months, we've seen the HDFC Logistics Fund, HSBC Consumption Fund, Kotak Quant Fund,
10:35 Nippon India Innovation Fund, Quant Manufacturing Fund. And these are only five, maybe there are
10:40 more, which have gotten launched. Now, thematics carry an inherent risk of you not being able to
10:45 necessarily time it to the right point of time, and therefore, best to go in with an advisor who
10:51 is advising you. But here, we try and still talk to our guests and understand from them,
10:57 what do they think about any or all of these. Rishabh, it's a long list, five funds on one
11:04 show. I'm not asking you to analyze all five of them. But if you had a chance to look at the
11:09 thematic funds that have gotten launched in the last two months, did any of those stand out for
11:16 you? RISHABH GUPTA
11:18 I need to be very honest with you. I really won't recommend any sectorial or thematic funds
11:23 to my clients. The only theme-based funds what really excite me is the Global Technology and
11:29 Innovation Funds, which is, you know, investors can invest through NASDAQ 100 or the FANG+
11:35 index, you know, because you know, you are not only investing abroad, you're having a
11:41 global diversification and also you're investing in US dollars as well. So in my view, I think keep
11:47 it very simple because if we go into the thematic and sectorial category, it's going to be an
11:51 endless number of funds, you know, because that is thematic is the category where there is no
11:56 restriction for a particular AMC, they can launch a number of different kinds of teams in that
12:02 particular category. And I mean, I just pulled out some data of the average FlexiCap category of
12:09 sectors, you know, what are they having. So, you know, at this point of time, financial technology,
12:15 auto, capital goods and healthcare, you know, FlexiCap funds do have a very healthy
12:21 mix of different sectors. I mean, see, when we are betting on India today, and we are seeing the
12:29 amount of growth, what we are seeing today and what is expected in the next decade or so, I think
12:35 every sector has its own merit and will have its own cycle of outperformance and underperformance.
12:41 So I think, you know, in my humble opinion, I think a FlexiCap strategy would be the best and
12:45 you let the fund manager take the call of which sector he or she should buy, when to buy and when
12:50 to sell. Okay. Just wondering, though, there are five which got launched in this period. I know
12:59 you mentioned that you don't look at thematic funds at all, Rishabh, but, you know, manufacturing,
13:05 consumption, etc., are all themes which look to be very, very strong currently.
13:10 Should investors research any of the thematic categories? We're not asking for fund
13:18 recommendations here. But is there a thematic category that you believe might be good to
13:22 research? People can then do their own research and figure out if they want to invest or not.
13:25 I think global technology and innovation is something what really excites me, you know.
13:32 Apart from that, I think FlexiCap strategies would do best. But because we are in a digital age and
13:38 going forward itself, it's just, you know, the amount of technology is going to increase in
13:43 terms of AI and chat GPT and God knows what, you know. So I think global technology and innovation
13:49 and targeting. See, there are many countries out there, developed countries, which are way far
13:55 ahead in terms of global tech and innovation compared to India. See, India is a very good
14:00 manufacturing country at this point of time, right? But we are still lagging behind in terms
14:05 of global innovation and kind of, you know, even during the COVID, you know, I mean, the innovation
14:11 had the vaccination innovation was majorly done by the developed world, you know, and then we were
14:17 the largest manufacturer and so on. So I think global technology and innovation is something
14:21 what really excites me and is going to do really well in the future, in my opinion.
14:27 Okay. Mrin, I presume you are also in the camp which doesn't believe in thematic funds.
14:33 But since there are a bunch of them coming, I'm tempted to ask you, did you get a chance to look
14:37 at any of these? Yeah, I looked at all of these funds. And again, I don't recommend thematic funds.
14:45 And I think generally most of the thematic funds get launched after there's been a significant run
14:50 up in the stocks in that particular team. Right. And in any case, I do not recommend thematic
14:58 funds, because there are many factors that need to play out for the team to play out. And I think
15:04 the best example would be of the healthcare team, which came in 2020, but did not really play out
15:10 in 21 and 22. Right. So again, what happens is that at the macro level, the team needs to play
15:17 out the companies within the team need to also perform and you know, not all companies in these
15:24 teams that we are looking at, like, for example, when you're looking at the innovation team, right?
15:29 Not all of these companies are going to be established companies, right. And, again,
15:35 the team might look very great, but the returns may not really follow. And as I said that most of
15:41 these funds come out once the stocks have already risen. So then is there really, you know, is there
15:49 enough value left in that particular team or not? And again, I completely agree with Rishabh that
15:54 I think we should just leave it to the experts to really figure out and research and figure out
16:01 what's going to work and what's not going to work. The other thing is that when you look at the
16:06 sectors in all of these teams, right, so you've got auto textiles, and of course, a whole lot of
16:12 manufacturing sectors, which are common in some of the teams. So these in any case, would be there
16:18 in the existing diversified funds. And even when you look at quant as a strategy, for example,
16:24 right, so you're looking at a strategy where they're saying that they're going to not look
16:28 at companies which have low governance or high leverage, and so on and so forth. And
16:33 these would in any case, I think the parameters that fund managers would be following for their
16:38 diversified funds, right. So I don't really find anything new. And again, as I said, these are too
16:44 concentrated, you're just better off being in a diversified fund, which will anyway identify the
16:50 right teams for you. Fair call. Okay, point well taken. Before we wrap up the show, quick
16:57 30 second answers from both of you. Marin, I'll start with you. If you had to do a portfolio
17:03 composition of sorts, what would be the proportions be between in the mutual fund portfolio between
17:10 large cap or strictly large cap funds, or a proportion of large cap to mid cap to small
17:15 cap depending on whether you're choosing a flexi cap fund, multi cap fund, or a mixture of all of
17:19 these, what would the proportion be? So I would actually just have like a,
17:25 you know, like, what I typically say the easiest way for anybody to make a portfolio is to have an
17:30 index fund, have a flexi cap, actively managed flexi cap fund, which has international exposure,
17:36 and have a small cap and a mid cap, I think, you know, just these four funds in the portfolio. And
17:41 of course, you change the weights based upon the risk that you're willing to take. But yes, if you
17:47 are in it for at least 10 to 15 years, if you can hold for 10 to 15 years, I would take more towards
17:53 smaller mid cap. Okay, we'll jump the same question to you.
17:55 I agree with me that if you have a 10 to 15 year time horizon, I think the maximum wealth is going
18:03 to be created from the mid and small cap space. So I think depending on one's risk, probably
18:08 anywhere between say 25 to 50% should be in large cap and the rest can be divided into mid and small
18:14 caps. So they can choose either they can go for a flexi cap focus funds, or they can have a
18:19 combination of a few flexi cap focus funds and sorry, mid cap and small cap funds. But again,
18:26 try to keep a little concentrated portfolio, not an over diversified portfolio. So in my view,
18:32 probably say around four to six funds should do great. Okay, and viewers, if you want to
18:37 understand why this is such an important thing, not to have an over diversified portfolio,
18:42 about four or five weeks back, we did a show with one of the advisors was Kartik Shah. And when we
18:48 spoke about how over diversification actually leads to a major loss in the kind of returns
18:53 that you can make from your mutual fund portfolios, that might give you an idea or two.
18:57 Meanwhile, Marin, Rushabh, thank you so much for both of you for taking the time out and being with
19:03 us on this leg of the Mutual Fund Show. Thank you. The pleasure was ours. Viewers, thanks for tuning in.
19:10 Thank you.
19:10 Transcribed by https://otter.ai