# The Mutual Fund Show: An Investment Idea Amid A Market Rout

Volatility has gripped Indian equities as the number of people infected by coronavirus rises. Yet, there lies an opportunity for mutual fund investors.

Indian benchmarks slumped nearly 40 percent from their January peaks, joining the global peers in the worst selloff since 2008 financial crisis. While they recovered some losses, the rout prompted people to rethink their investment decisions. But financial advisers have often suggested that pausing systematic investment plans may not be a good move.

“The best return in systematic investment plans actually comes when the markets are extremely uncertain,” said Vijai Mantri, chief investment strategist, founder promoter and chief mentor at JRL Money. “One of the main benefits of investing through an SIP is rupee cost averaging. By increasing the SIP amount in tandem with the fall in market, you can maximise returns,” he said on BloombergQuint’s special weekly series *The Mutual Fund Show*.

Contribution of SIPs, according to the Association of Mutual Funds in India, rose 8 percent year-on-year to Rs 100,084 crore in fiscal 2019-20. Inflows into such schemes remained steady even as the overall mutual fund industry faced pressure amid the virus outbreak.

Mantri explained how SIPs work using an example. Let’s say a person invests Rs 50,000 in January when markets hit a peak of 12,000. He would only turn break-even on the investments when the markets scale back to those levels. But assuming the person has cash in hand and invests the same amount over the course of time. Then not only does his investments breakeven before that, but will also show a positive return when the markets are back to 12,000 levels, he said.

**Watch the full interview here:**

**Here are the edited excerpts from the interview:**

At a time like this when there’s so much of talk about the markets not looking all that robust because of a number of factors, why is it necessary to continue my SIP? Why can’t I pause my SIPs or wait for a bit? Let the stage clear, and then restart them. I don’t need to buy the bottom, I can very well buy it about a month later, once the bottom is reached, and it’s revoked as well. What do I need to invest at every stage, while the markets are going down?

That is a very good question. First of all, I hope all viewers are sound and safe and following all instructions of the various authorities. The question which you ask is that why can’t I stop my SIP and then when the cloud is clear I would come back and invest? The best return in SIP actually comes when the markets are extremely uncertain. Just to give a simple perspective, if you look at the data on 1 April, 2020, one year SIP data of 31 March, 2020, was showing 40 percent negative IRR. So, suppose somebody did Rs 10,000 SIP per month, he has invested from April 1, 2019 to March 31, 2020 Rs 1,20,000. His portfolio value on April 1, 2020 was Rs 93,000 so he has seen around 39 percent negative IRR. But suppose he has not stopped his SIP for the month of April, and is invested on the April 1, the portfolio value on April 30 from Rs 93,000 has become Rs 1,24,000. So, his Rs 1,20,000, which was Rs 93,000 was staring a loss of Rs 27,000. Now Rs 1,30,000 has become Rs 1,24,000. So, he is just looking at Rs 6,000 loss. If you go on further you figure out that the best month actually or the month with the uncertainty is the highest. We have seen this in all market scenario; whether it is 2000 or 1992 or in 2008. We are seeing similar kind of trends even now. Now the current situation is very different from what we have seen in 2008, 2000 and 1992. The current situation is different in the sense that this time around, it is not only the question of volatility of the return but also the question of cash flow—whether people will have jobs, whether people will have salary cuts. So, I think if your concern is on cash flow, then stopping SIP is not a bad idea. But if your concern is not on cash flow and it is on volatility then investing and continuing to invest in this market is much better idea, in my opinion.

I take it Vijay that you telling all your clients to actually continue their SIPs. Are you by any chance telling them to increase the size of their SIPs in any fashion whatsoever or that would be a bit too much?

If people can afford to increase, nothing like it. But I tell you, it is a normal human tendency to go for comfort and the comfort people see, when they see return. They avoid anything discomforting, and discomforting thing is that returns are negative, and currently SIP returns are negative. I just gave you one month, one years’ number. Let me elaborate a little bit on the same data for three years on March 31, 2020. You invested 36 installment, Rs 3,60,000; the value was Rs 94,000 on April 1, 2020. But just one month more, and Rs 3,60,000 has become Rs 3,70,000 because he invested Rs 10,000 on April 1 as well. The value from Rs 2,94,000 has become Rs 3,65,000. And if you go a little longer, then the kind of money April month made on the accumulated portfolio is humongous. So if you add more when the returns are negative, nothing like it. It will add significant value whenever the market records... maybe six months or one year from now, but you will be very happy. We have seen every market conditions the similar behaviour pattern of investors. That is a reason that very few investors end up making money in equities.

So let’s work with an assumption that people are convinced that SIPs should not be discontinued. Now, let’s try and make some scenario gazing. Are there some formulae that you advocate that people should do when in their SIPs with some assumptions and some math, I mean you know people who love to know that if hypothetically I have some existing amount in my SIP book over the last few years that I’ve gathered and then from the current point of time, if I continue my SIPs, but the markets may go lower. What would happen to the whole math? When will my money breakeven? When will I start making money? Is it better than therefore that a fixed deposit or recurring deposit versus an SIP? So, would you would you be able to give us some assumptions. Please lay out your assumptions clearly if you can, and then tell us how long would it typically take under those various assumptions?

It’s very interesting; even one month has changed the entire thing. Suppose I was doing the show with you on the first week of April, my answer would have been very different but today my answer is very different. So again, we go back to the same number. We go on one year SIP return on March 31, 2020 — Rs 1,20,000 has become Rs 93,000. Three-year SIP return on March 31, 2020... Rs 3,60,000 has become Rs 2,94,000. Five-year SIP return, Rs 6,00,000 has become Rs 5,52,000. Seven-year SIP return, Rs 8,40,000 has become Rs 8, 97,000. And 10-year SIP return, Rs 12,00,000 has become Rs 15,70,000. Now just look at these numbers. On April 30, just had one more tranche where Rs 1,20,000 has become Rs 1,30,000. But the portfolio value for one year has gone up from Rs 93,000 to Rs 1, 24,000. You had a 39 percent loss in year one, now it has become less than 5 percent. In a three-year period, your Rs 3,60,000 which was Rs 2,94,000, now Rs 3,70,000 has become 3,65,000. Actually, you had just Rs 5,000 loss. Earlier, you are looking at Rs 55,000 loss on thre-year SIP. And suppose you go to five year, the Rs 6,00,000 which was Rs 5,52,000, now Rs 6,10,000 has become Rs 6,74,000. So, you were staring at losses of Rs 48,000 but in one month you earned a profit.

These are too any numbers so let me try and actually stick to the example that we’ve made for our viewers to explain them better. So let’s say that somebody has got Rs 50,000. What do you advocate now? From the current point of time, if somebody is cutting the SIP, what is the assumption? What is the math?

There are two assumptions. One, we are looking at Nifty and second, we are looking at SIP. So, my assumption for SIP, let’s assume that the market continues to go down from these level 2 percent every month for the next 12 months. So, from these levels, the market is down 24 percent from 9,000 approximate number. Then the market comes back to 12,000. It takes around 28 months more so in total a 40-month journey. So now market goes back to 12,000 Nifty level which we have seen in January 2020. And if the investor continues to invest in SIP then the 39 percent one-year loss becomes 14 percent IRR over 52 months, and so on and so forth. So, every time period the customer has made money, the best return would come to you when the SIP goes through extremely challenging situations; that we are talking about SIP returns.

Now let’s come to the Rs 50,000 number. For instance, somebody has invested Rs 50,000 in Nifty, let’s assume in January 2020 at the peak of the market when the Nifty was at 12,300 level. Today the person is staring at the losses of around Rs 12,000 and Rs 50,000. So let’s say he is having 24-25 percent losses in the portfolio if somebody just invested Rs 50,000. Now what you are recommending, suppose you already invested Rs 50,000, now for the market to recover and the losses to recover the Nifty needs to go back to 12,000. If Nifty goes back to 12,000 then you are breaking even. But suppose your cash in hand, and for argument’s sake, Rs 50,000 you have invested and suppose Rs 50,000 is there in your hand, then you can invest those Rs 50,000. Then we are showing a path on how to invest that money. So, not only you recover the losses you’re already incurring in your current portfolio, but you are also making money in the process. So what we are recommending is very simple. If you have Rs 50,000 additional to invest; if Nifty goes down from 9,000 to 8,000 level, then on every 100 point downturn you invest 2 percent of Rs 50,000. So basically you invest Rs 1,000 on every Nifty down from 9,000 to 8,000 level.

So, we have invested say Rs 10,000 when Nifty goes down from 9,000 to 8,000. Let’s assume Nifty further goes down 8,000 to 7,000, then add that fall on every 100 point you invest 2 percent of these Rs 50,000. So say you invest Rs 1,000, whatever the number comes to. Suppose the Nifty continues to go down then from 7,000 to 6,000, you invest 5 percent of Rs 50,000 on every fall. So what happens when Nifty goes down from 9,000 to 6,000 level? You have invested an additional Rs 50,000. So, Rs 50,000 is your original investment. Rs 50,000 you’re investing according to what we are recommending. So your total portfolio value is Rs 1,00,000. And the Nifty strengthening at 6,000 level at that time and your Rs 1,00,000 is currently sitting at around Rs 66,000 at that time. But suppose Nifty recovers back, the moment Nifty reaches 9,000 points, then on your Rs 1,00,000, you are in profit. And suppose Nifty goes to Rs 12,000, then you are in absolute money to the extent of 35 percent of your investment. That is what we are recommending to the investors. Suppose you have spare money to invest, use this crisis to participate in a very staggered way. So not only you make money but you also recover whatever losses you already carrying on your portfolio.

The question would be for people, one thing is easier said than done that at every 100 point you keep on investing 2 percent, but at times the markets don’t quite wait for 100-point fall, right? They might just fall in a swoop. So would you then account for a lump sum investment instead of 2 percent of the portfolio or maybe 4 percent if the Nifty has fallen 200 points? Would that work as well?

Absolutely. So, we are saying on every 100 point fall from 9,000 to 8,000, you invest 2 percent but if Nifty falls 200 points then instead of 2 percent, you invest 4 percent. You do a calculation of per 100 basis points 2 percent. If Nifty falls 500 points then invest 10 percent of the corpus in Nifty at that point of time. The target is that if Nifty reaches from 9,000 to 8,000 level, you should be investing 20 percent of your cash at that level because nobody knows what the bottom is; nobody knows what the top is. If this crisis is providing this opportunity, then take advantage of this opportunity to make money on your portfolio.

You are saying that if I had invested Rs 50,000 on Jan. 16, when the Nifty was at 12,356. Then I’d staggered my investment of Rs 50,000 from 9,000 to 6,000, whatever the dates might have been. And when the Nifty goes back to 12,000 my total return would be 33 percent?

Absolutely. Rs 1 lakh invested would have become Rs 1, 33,000 or else your Rs 50,000—if the Nifty goes back to 12,000—your Rs 50,000 will come back to Rs 50,000. You are not going to make any money in the process, but suppose you advantage of this crisis and you spare cash in your hand- which you can spare, then it’s a staggered investment accordingly, where recovery in Nifty, and the fall in Nifty will help you tremendously in wiping out all your losses.

Hypothetically, there are two extremes out here that when the Nifty is back at 12,000 that is when the initial investment was Rs 50,000 and if your staggered investment was Rs 50,000—which means that the investments were equal. Now it could be that Rs 50,000, Rs 1,00,000, Rs 1,50,000, Rs 2,00,000, Rs 10,000 whatever you have, if your initial investment and your staggered investment sum was the same, then your total returns were 33 percent. However, let’s assume your initial investment was way higher, which is Rs 2,00,000, and your staggered investment was Rs 50,000, which is one-fourth. Even then your total return was 11.7 percent, which is not bad at all. Now my question to you is, should people continue to invest, even if you’re choosing to invest in mutual funds, should it be a mixture of equity and debt schemes? Should it be largely equity, if indeed the assumption is high because when you’re talking about a Nifty 6,000 to Nifty 12,000 it has to be equities only and within equities? Would you consider the larger bias towards large cap funds for such an exercise or could it be a mix of large, multi, mid and small?

So, let me answer your first question first between debt and equity. I think debt returns are going to be sub-optimal because liquid fund YTM has become 4.75-4.5 to 4-5 percent. So, liquid fund will generate that kind of performance for you. Ultra short term will generate around 6 percent return because lots of money is going into banks and banks are putting money with RBI or testing top quality corporate paper or PSU which everybody’s buying including the mutual fund. The yield in that space is completely crushed. So, what we have seen today is that GSEC is around 6 percent, AAA bonds around 7 percent-7.5 percent. You are not going to make big money in these instruments. These instruments in the best case scenario are to protect your capital in the difficult times. So, this is what is going to happen to debt. In my opinion in debt, you stay invested in the shorter end of the curve, invest in ultra-short term, not even the liquid fund because liquid fund— the gap between liquid fund and ultra-short term is going to be minimum 1 percent return difference.

Now, where should you go and invest? You should invest in asset category which has corrected the most. The AAA corporate bond NPAs, PSU and GSEC actually serves in this market conditions because there is a lot of money chasing those stock holders so significantly. Which asset category has crashed completely in this market condition is equity. So, naturally you should look at investing in equities but keep one thing in your mind. If your view is that the normalcy is going to return in a one year time or two years time or three years time, then keep that much cash in hand to meet your daily day to day activities, requirements and all that. Anything over and above, only should be invested in equities because the best returns from these levels are going to come in equity as an asset category. So, our recommendation is to save for the emergency contingency fund to the extent of maybe one to three years and beyond that, suppose you have surplus money coming in and then invest in equity in a very staggered manner.

Would it be essentially larger investments in the current scenario in the large cap funds or do a mix?

What we do normally do and see that, our first run is normally to large cap. But between large and mid and small caps, the gap is anything between six to 12 months. If the large caps are running then after some time you see mid caps also participating and small cap is also participating. People could look at investing in large cap, people can also look at investing in multi cap and some perturbation can go into mid and small cap. So, across all categories, one could look at investing in these market conditions.

Anything that people should keep in mind as a bit of a red flag situation? I mean no investment is devoid of risk. This scenario gazing that you’ve done is one, but there could be other risks as well. So even to the scenario gazing as well as to mutual fund investing currently, what is that biggest red flag?

See, the biggest red flag never comes from known events, it invariably comes from unknown events. The non-event markets always discounts. So for instance, if you look at the crude prices going into negative, nobody ever in their wildest dream would have thought that it will become negative. No body, I am in the mutual fund industry for the last 30 years, I haven’t seen a fund house closing down a scheme. So, the liquidity completely dries up in that segment of the market. So, these kind of things in my opinion will keep happening even in future. What will happen in future you can’t predict, but what you can do is prepare and how does one prepare. While investing one should have a much more diversified portfolio. On many of the shows, I have been advocating that one needs to invest in eight to 10 funds, have a diversified portfolio, that is the best strategy to fight against uncertainty because investment and uncertainty comes together. So, that is how one should look at approaching. The red flag may come from anywhere. And at least what we see over the next one year, there will be a cross current of information. You will have one great day where great news will come and then maybe the bad news will come in another day. I am saying whenever the bad news comes, put some money into equities and you will see over the next two to three years, a significant amount can be made from these levels.