The Mutual Fund Show: How Multiple SIPs Can Be Key To Financial Freedom

A BALASUBRAMANIAN: We have been discussing it about for quite some time. The way we said that SIP, you can see the badge, it’s the sabse (most) important plan for anybody as a mutual fund investor. It is a systematic investment plan, that’s why we actually found this idea a few years back. Then we said that, this investment have to also be supported by the purpose and the purpose for which every SIP is being made, is for meeting certain longer-term goals. The long-term goals could come for various purposes and it could be short-term goals, medium-term goals, long-term goals. For every individual in the country, every saver in the country, it is about goals. The best way to fulfil the goals is actually through the SIP route. Then we thought, while we always keep saying this all the time, like sabse important plan, that investing now is very important with SIP. It was fine and we thought of doing a survey among people who are of different age groups and also people out there—women and men. Then we realised that most of the women, they tend to begin their SIPs at the age of 20-22 whereas most of the men seem to be starting their SIPs at the age of 35 to 40. That’s something which I think came up because some of the people who actually responded when they started their SIP, they said, I started at the age of 40. I then realised quickly because there was a time, the initial period I think people must be spending their money for the purpose of enjoying their life, the initial spending that they have to make and that's something maybe they will not have enough money to save. Therefore, as they start getting cash surplus, then they start realising, then they start doing SIP. I also assumed that at the age of 40, that is a time where you start looking at the next 20 years in detail.

A BALASUBRAMANIAN: The crowd is very small, take that into account too. Then we realised that when the different purposes are being met and after doing this survey, we clearly felt that we need to actually go out in the market and make the SIP as something that you start early and then stay invested for a long period of time in order to get your aspirations fulfilled by the way of level of compounding which SIP offers in the long run and when the market goes through cycles. That's something, again, it came as one of the analogies. We talked to 40-year-old people. At the age of 40 they started an SIP, and they made us believe that maybe it's just very important to have a cash flow clarity to the before he goes in for a SIP. It is also something not necessarily that once you start looking at SIP as not as an investment but as an expenditure on a month-on-month basis, naturally many of the expenses you carry out, SIP also will do it like the expenses. But unknowingly, it will actually become as savings for you. Therefore you're able to make your investment and create the wealth for the future. So, this is why very clearly, a lot of insights of this kind came. That said every individual in the country has got too many needs in life, apart from creating their own family, and started leading a family life while leading a new employment life. So, it is equally important to build for the future as it is for one house buying, car buying or maybe asset creation or maybe in the form of plans for the children’s education or retirements and so on and so forth.

So for those, we have to create multiple SIPs. Second, we said multiple SIPs, is because everyone doesn't create investments for the purpose of only wealth creation in the long run. For example, if you have to invest in mid-cap, then you have to definitely take market fluctuation into account, risk associated with that too. It does give you a very high-level compounding in the long run, there's no doubt about that but that doesn't mean that can you put all your money in all in those schemes which gives you the highest performance? Let me say that within the schemes of equity, which are well created, that each one can give you a different experience taking into account the segment in which it operates, while meeting the longer-term goal that we set. That’s why we said that multiple SIPs are a must and that is why we started the multiple SIP. Third, I think we did, we looked into the overall SIP base in the country. We have roughly about, 1.6 crores applications that must be there in the case of SIPs or the registered SIP portfolios. Given the fact that households, the investable household in the range of about anywhere between 15 crores to 20 crores the households, I'm talking per family, I'm assuming four or five people, I'm also assuming the families who can afford to make investments in SIP. So, those kinds of household are about 20 crore households. So, where we are today and while there are 20 crore households, there is also a huge difference between them—about what is there today and what is the opportunity. Therefore we came with the idea called with Win With SIP and also make your car with an SIP, make your house with an SIP, therefore you win with an SIP and therefore every household should have SIP. So, that is the insight in the game and in fact, since the time we did this, the understanding of my own team members, understanding of how we need to work with it, the power of SIP is getting reiterated again and again on this basis.

A BALASUBRAMANIAN: On the basis of the multiple SIPs, one the schemes in which we of course provide you to take is actually mutual funds into category, we have large-cap category, or mid-cap or small-cap category, then we also have thematic categories. Each of the categories gives a different experience for investors in the long run and the return that can be generated as it goes down the risk and as it goes up, the risk reward I think is also quite substantial. By way of choosing the multi-SIPs, clearly the outcome of the multiple SIPs is that, it is something which gives a greater experience for investors, from the point of view of giving a compounding of return which is far superior and choosing only one product in the large-cap category or something, or maybe in the Nifty-equivalent kind of schemes.

It gives you a better experience that's one. Second is, as I mentioned earlier, the different purposes for which you come, for each purpose—say retirement or from the early age, if you plan to take a huge risk, because what do you have? Maybe you have 25 or 30 years. Therefore your ability to put this money into schemes which can give you a higher return with a higher risk associated with it is of course worth doing because I'm looking at a 20-year time horizon. If we look at education about 10-year or 15-year kind of period is okay. So, it helps you choose schemes which are more relevant to you so that you can make the investment. So, second, for every purpose you are making a different investment. Then the accumulating returns that you generate, they are far superior in a normal SIP which has only one scheme. Most of the people actually choose one scheme or leave it at that. That's something we made us believe and today also, we look at the number of people who chose a one scheme SIP, is far higher than the multi-SIPs. So, if you are to generate combo of very good experiences on return, a combo of their differentiated purposes for making investments, then something as a multi-SIP is the one which comes in handy for that.

A BALASUBRAMANIAN: Exactly, each scheme serves a different purpose and for example most of the people choose SIPs, say, as a large-cap SIP. Another example is, someone chooses to invest only in equity, but it is a large-cap fund. At the same time, you also know very well, funds like the Digital India Fund, when the time is good for them because digital as a sector has done extremely well in the last many years, how many people actually think about making an investment in the Digital India Fund? The real thing is, Digital India Fund is more of a thematic fund, it is not meant for me, as a common man. It is meant for somebody else, it doesn't look like that. The moment you can split your investment into say yes, I invest in large cap funds by buying equity, with some amount is fine as actually, it’d be linked to the market. But funds like Digital India Fund actually gives an exponentially higher return but it comes with a risk. Therefore, I also participate in that. So, it serves two purposes one, I choose of schemes in different categories which actually gives a different experience at different points of time at times but continuously at all times. Also the purposes for which I'm making an investment, all three combinations put together, it comes into this.

A BALASUBRAMANIAN: I think what you're saying is, while it can be seen as something that is very difficult. Given the fact that in the last few years a lot of discipline has happened for the whole industry in terms of the categorisation of schemes which came in, now it's very clear, black and white and the industry now has absolutely no confusion. The second is, growth has become a single option that everyone has to choose. Though you're providing choice to the investors, now they are a no-brainer that the industry and it’s growth is the best way to actually build your assets, as and when looking at dividend plans and so on so forth. Third option is that, the moment you construct your portfolio which is core versus satellite. The way money managers construct portfolios—even as a money manager, the core which is actually of longer-term and structural stories may make investments but at the same time cyclical sectors can actually give you a better alpha. That’s why the satellite portfolios have been created. If we had to just draw a parallel from this point of view the diversity of equity funds coming from large-cap, multi-cap, flexi-cap kind of things can support it.

The thematic funds like digital and banking, these are all something which are of longer term and structural stories but they go through a volatile period and that's something as the second one. The third one of course is the International Fund. While international has been given as an opportunity for investors, believe me the international fund is not for the common investors. International investment is actually only for those who are exposed to Indian equity investment and then choose investments which are based in the overseas funds. It then makes sense. Domestic investors who are never exposed to equity, have not even actually been fully invested in equity or in equity mutual funds schemes, they should not touch offshore overseas funds just because they want to try the new things out. So, I’d say, stick to the domestic core versus satellite kind of themes. That's more than enough and that is what we believe the target segment for that set of investors is far higher than the target segment than the target segment who also invest in overseas funds.

A BALASUBRAMANIAN: My primary thoughts are for clearly well-tested, funds with a proven track record. Beating benchmark is only one point, everything else, that is, you can't measure the success of the money manager just because it is beating the benchmark. There will be a period where money managers will beat the benchmark, there will be a period where money managers will not beat the benchmark. If you look at the long run, generally money managers who tend to perform in line with the market are better than the others. In the Indian market and the widespread market movement is going to be quite aggressive.

At the same time if the market falls, the ETF will not fall so your ETF will not also fall. That is the wrong notion, that ETF means it is superior to the diversified, actively managed funds that is being the case, ETFs should also be a part of the complementary product that I have to provide. It is not a competition; it is a complementary to the actively managed funds. At the same time if investors make mistakes, like in Bitcoin, it is an unknown animal. Some may not even understand Bitcoin but there is no doubt that people in the world make more money in Bitcoin, but the question is, who will be the loser? Will it be the guy who didn’t know? Again, I would not talk about small case at all, it is another model to build a portfolio, but the question is, the MTF testing that has been done in the last one year, two years of the productive creation that has happened, how many have seen a cycle of two years then? Has it seen a downcycle? Not yet either. Ivory investors who come in, have to understand that with a market fall, these portfolios also fall. They aren't immune to the market fall. They're actually linked to the market fall. Therefore, the diversified portfolios have a good mix of mutual funds, they are well tested, are long run, have diversity in the equity portfolio that give you a sense. Probably you can go one step further and also build a portfolio for a volatile market within mutual fund schemes. Someday if you don't create a cushion in your portfolio by investing all your money in equity, times like today when the market falls you start feeling the volatility too. I have seen that in the last 25 years, many people have asked this question, why did they put so much money in equity and now everything is gone. That is why I think expenses don’t matter, low expenses doesn't matter either. If you look at the portfolio approach by investing in equity, and fixed income, then you look at the portfolio returns—if it is enough with what you want to generate, more than 20% of return over a long period of time. That's why then everyone wants it. So, stick to your objective, you should never become greedy and not become too much fearful as well.