Stick to asset allocations despite volatility: Lakshmi Iyer

Sticking to principles, not deviating from that even in this kind of market volatility, can help one predict the market with a high degree of certainty, Lakshmi Iyer, Chief Investment Officer of Debt and Head of Products, Kotak Mutual Fund, tells ET Now.Edited excerpts: What message do you hope to send to investors given where markets are and given the kind of volatility we are seeing in the market?My sense is that SIP as a concept becomes even more entrenched and much more meaningful in a market like this. When we started off three years back, it was more trying to grab the mindshare or the eyeball of the investors saying that look in India, the equity cult is very poor compared to some of the Asian peers and developed market peers. The traditional ways of investment were not working out. That was the first level. After engaging with the distribution and the investment fraternity, we realised that people are more evolved now. Today as we speak, there are more than $1 billion worth of SIPs and 7,400 odd crore happy investors. We are adding folios via SIP and now there are variations of SIP. The message that we want to pass on is if you are a first-time investor, even in this kind of a market, SIP is definitely for you. That is the key message. When I travel to non metro cities, I see SIP has become ubiquitous, It has become synonymous with investing like Bisleri and mineral water, Xerox and photocopying. Mutual fund is the vehicle that facilitates SIP. Kudos to the industry that it has been able to pass on this message. We are just furthering that cause.While we can celebrate the Nifty highs, we all know what is happening to the rupee and where the crude is. For that matter, if your portfolio has been largely skewed towards mid and smallcaps, one cannot afford to smile even after one month of rebound. What is your message to investors who are looking to balance fixed income and equity?The first and the most important thing is do not deviate from your asset allocation. This sounds very clichéd and very old fashioned but old fashioned thoughts are coming back. It is very important not to forget grandma’s recipes. For example, if I am an investor with 70% in equity and 30% in fixed income, because of the recent market movement, obviously equity allocation has gone up a tad assuming this is largecap oriented and the fixed income is a little bit staggered. What you have to do as an investor is take that money out of equity that is beyond your asset allocation and get into fixed income or vice versa. If you have a predominant midcap portfolio, that portfolio has obviously eroded in value in the near term, then it is time to rebalance. So, it is very critical not to move away from your basic disciplines, even in this kind of a market.Take me for instance. My investments are heavily skewed towards equity and predominantly SIP and I have been doing this for the past 15 years. This kind of market volatility therefore does not unnerve me. If I extrapolate me or my kind of a portfolio to the rest of the audience, it is not very different. Sticking to principles, not deviating from that even in this kind of market volatility, can help one predict the market with a high degree of certainty.While there is volatility in the equity markets, a large chunk of the monthly inflows and SIPs is being directed to the equity side of the business. How do you educate and inform and make investors more aware that while starting on SIPs is the first step, starting on SIPs within debt funds, within fixed income funds, is a stronger message? It is a very good idea. While the equity culture is getting engrained into people, the moment we talk about fixed income, people start associating it with volatility. The moment you have something known as volatility, you have something known as SIP or an SDP to help you weed out that volatility. For example, we did this own analysis, the Nifty credit risk index that we have been tracking. It has got a track record of almost 15 years plus of CAGR returns. If an investor did an SIP of as low as Rs 2500 and continued that SIP, the CAGR return over that period was close to 9%, which is not bad at all. So a Rs 2,500 per month since inception which is 2001 odd for that index got you about Rs 12 lakh. If you did a 10% SIP top-up, that money went up to Rs 23 lakh. That is what we also as a firm have been trying to advocate, that SIP is for an asset class and for removing vulnerabilities, volatility in your portfolio. It is very critical.For someone who wants to time the debt market, someone who is looking at a very short term view, given that the yield is already at a two-month high, would you say now is the time to invest or go for that top-up?It depends on which category you are investing in fixed income. For example, a guild fund typically invests in long maturity bonds or predominantly guilds. Can you start nibbling at these yields at 7.93% odd on the 10-year? The answer is probably yes. How much? May be 5-10%, but can I say with a high degree of certainty, that look you have put your money today, tomorrow the yields are going to come down and prices are going to rise, but it is very unlikely because the currency is vulnerable. Even for that kind of an investor, if you were to start doing an SIP into that category, I do not think it is bad. But as I mentioned, if you have a portfolio which is skewed or balanced in favour of fixed income and equities, a slightly more conservative strategy for an SIP would be a more prudent option. Which is why I said you obviously cannot do an SIP on the credit risk index, but you could do it on any fund that you like.What are the return expectations while investing in debt funds? We have already seen the yield hit a two-month high and is expected to go up further. How can investors take advantage of this rate tightening cycle by investing in debt funds?When yields are at elevated levels, you see strategies like fixed maturity plans do exceedingly well because investors get the opportunity to lock into these kind of funds. You are mitigating interest rate risk. Fixed income cannot assure returns but looking at the nature of the curve, for example, if you are investing in a one-year debenture, today the yields available in the market are close to 8.5%. If you go down the credit curve, you get maybe 9%. If you pick up these instruments and choose those instruments from the underlying in the portfolio, those are the kind of returns that one could look forward to.As I said these are all in “as is where is” basis and interest rates are so uncertain that it is very difficult to predict returns on any of these strategies. It is very prudent that you have a conservative outlook within fixed income and a generic expectation that these strategies have the potential to outperform traditional mode investments that you could go with.

from The Economic Times https://ift.tt/2wqco3q