How you miss sound products

This is no research article. This is simply my experience over 15 years of interacting with investors both as an analyst and an advisor. This is my experience on how investors miss out on good products because they do not take the road less travelled. Since I have dealt with mutual funds/stocks for the most part, let me take those as examples to drive the points.

AMC familiarity and size

Several investors I knew preferred schemes from fund houses that had names they were familiar with. It would either be their own bank names or very large brands that exuded confidence. I dug a bit deeper into this and realized it was not only the comfort they had with the brand names. It was because the lesser known schemes were simply not available, either with their banks or their fund distributors. And the media too seldom mentioned beyond the top 5 players, back then. Even well-meaning financial advisors preferred to stick to large names, both for ease of doing business and to also play it safe. While there is no malice in such a decision, in the process, both investors and advisors remain closed to newer ideas from smaller fund houses. For examples, even 5-7 years ago very few wealth management arms of banks offered schemes from a fund house like Mirae to their investors. Similarly, names like Religare Invesco (now Invesco) did not go too well with investors. These AMCs, over the years, produced several top funds that became consistent performers and their AUMs gradually swelled. Those investors who reaped the early returns that these fund houses delivered (with a nimble AUM) would see that momentum carry through, in their portfolios.

Not having differentiated strategies

Most investors who came to us had a tax-saving fund, a hybrid fund and a large-cap fund. That made for a portfolio. Why? Because that was what they were offered to make a start with, in mutual funds. A portfolio seldom had a well-rounded construct of funds with varying strategies that would either provide hedge or would deliver.

While there is so much discussion today about growth, focused strategy, quality and value styles of investing, funds that quietly and faithfully adopted these strategies, and performed, went unnoticed until they were promoted. Parag Parikh had a value fund with an international twist. Little did investors know it would prove to be a great hedge to other funds that were mostly high beta.

Similarly, while there is so much talk of focused strategy in the last few years (with market too focused in its rally), funds from the Motilal stable followed such strategy long before a formal category came into place. Now the problem is, these strategies can seem unattractive at times. For example, the Parag Parikh fund was prone to periods of underperformance (as a value fund) when Indian markets rallied. It began to gain notice only when its international holdings and value stocks shone when Indian markets went shaky.

Similarly, many investors who had plans to save for their children’s education abroad mostly had a child plan or at best a few large-cap and hybrid funds. None were told that even a small proportion in international funds (US-based) can help them diversify and provide hedge against the currency in which they were going to spend later (dollars). Why? Because, a decade ago, international funds barely beat Indian funds or indices. Also, they are taxed like debt. So, they did not gain the tax-conscious Indian investor’s appeal. But today, with almost 3 years of international funds’ outperformance over Indian markets, it is beginning to gain interest. Investor’s obsession for taxation and expectation of top returns always from a diversification tool meant losing its benefit when it mattered.

When confused, keep it simple

This one stems from own experience. I was an investor well before I turned an analyst. When markets corrected steeply, I had theoretical knowledge that I had to buy more. But I had little idea on which stocks to average. I then heard about India’s first ETF (Benchmark). It was in the market for a while and did not have great volumes. But it was good enough for a small investor like me. I bought. Then came 2008 and by then as an analyst, I knew I had to average. This time it was the lesser heard of index then, Junior Nifty. From there on, I would try to average individual stocks when they went through their own earnings or sector-related correction, but when they all fell (broad market correction), it was the index. This was not the best strategy, but it was optimal. I didn’t run the risk of throwing good money after bad, if my stock pick was flawed.

One, what is popular need not always be good. This is why seeking advice in public social forums (peer help mostly fails in investing, trust me) is not a good idea. Two, when you seek advice (even if it is professional advice), it is important for you to also stay on top of what’s current and what’s changing rather than go with popular wisdom.

When I started suggesting this to known circles of investors, they weren’t convinced. This is because nobody ever told them to invest in indices when funds and stocks did better all the time (back then). Also, who gains (other than investors) in a passive product?

The purpose of sharing these here is twofold: one, what is popular need not always be good. This is why seeking advice in public social forums (peer help mostly fails in investing, trust me) is not a good idea. Two, when you seek advice (even if it is professional advice), it is important for you to also stay on top of what’s current and what’s changing rather than go with popular wisdom.  That way, you will not lose out on quality products that could have made a difference to your wealth. There is a third purpose to my writing this, which is that all of us at PrimeInvestor has gone through these cycles for ourselves and for our investors and hence and open to, and observant of new and emerging trends in the world of personal finance. Where you fail to see or don’t have the bandwidth to, we pitch in.

15 thoughts on “How you miss sound products”

  1. This is fantastic note, Vidya. One that every Investor experiences during their journey. On several occasions we also miss out on opportunities due to our own biases. But your article is a great reminder to walk differently to earn the alpha.

    I’ve been of the early investors in the Parag Parikh Long Term Equity Fund; and I must say that its risk adjusted return is one of the best in the industry.

  2. Prakash Verma

    I found all the articles in PrimeInvestor and especially this one very practical and away from normal market noise.

    Can you share your thoughts on impact of performance of MFs which suddenly see high AUM within a couple of years. Also can a fund like Parag parikh be only fund for a person who want to run a simple portfolio or it should be clubbed by adding a fund like focused fund.

    Thank you for sharing such knowledge..

    1. Vidya Bala

      Hello Prakash,
      1. Thus far the impact we have seen is higher in midcap funds and low in multicap funds. Largecap funds have been underperforming with or without AUM 🙂 We will definitely cover this later and help you spot such cases. A value fund like the one you stated can be part of primary long term holding. WIth a focused fund, depending on whether it remains largecap biased or multicap your strategy shoudl vary. If it is largecap, an index fund should do the job over long term unless the fund has shown exceptional skills in long term outperformance. With multicap, it can be part of your portfolio along with other low beta multicaps. The problemw ith Sebi classification is that it does not allow individual investors to know what is the marketcap style of a focused fund or a value fund.
      thanks, Vidya

  3. Prakash Verma

    Thanks Vidya, Looking forward such interesting articles from you and your team. It would be great if you also cover some strategy how to pick a good fund without AMC bias and how to review your portfolios e.g decide when to exit a fund in your next write-ups.

    1. Vidya Bala

      Hello Prakash, Our product platform will be out in a week.You will see all that you ask for (include review) as a product from us 🙂 We provide the output so you need not duplicate the effort 🙂


    Great. The reading seemed to be autobiographical for me.
    Best Wishes for the launch. Try beta version first before going full. Launching the product just to meet deadlines and later rectifying issues (again in a hurry) would be inappropriate. We have been waiting and can still wait.

  5. Pandurangaa S

    Nice article madam. I feel that quant funds which uses multi factors for investing can be the new innovation in the Indian MF, although they do not have live track record across cycles, it can still give good returns also at minimal cost. In this backdrop, your views on DSP Quant Fund ?

    1. Vidya Bala

      Hello sir, over the last few years, some funds have been trying smrt beta using the existig smart-beta indices in IISL (NSE) but only with limited success. However, funds such as DSP quant have put in real effort to identify factors influecing markets. These are however restricted to large-cap space now. The performance of the said fund can be guaged only if we have a secular rally or fall. At present the narrow rally, not backed by sufficient fundamantals, in the nifty, is not providing the signals for us to assess such strategies. We will be the first to talk about it when it is time as we have ourselves been watching this space closely for the past 3 years to also build our own models. thanks, Vidya

  6. Hi Vidya,
    Can you please cover cost-effective ways of investing abroad, in your future write-ups? I’d like to explore diversification outside of India as well. Also, do you have a view (based on data) on whether it makes sense for Indian investors to invest abroad – considering long term market returns and rupee depreciation?
    Also, perhaps in future you could cover ETFs that you would recommend (as an alternate to mutual funds)?
    Any views on gold as an asset class (considering long term rolling returns)?

    Good luck to the team,

    1. Vidya Bala

      1. Investing aborad – internantional funds are your best bet unless you like to use the direct equity route available with some platforms. It works for those with deeper pockets. We do not have a view on the performance of internatinal markets but considering rupee view, we do think there is a case for diversification. We will be covering more later.
      2. ETFs – part fo our subscription product.
      3. Gold – outlook coming up this week.


  7. Hi Vidya,
    Thanks for the above. Which are the international funds that are cost effective? I’d suggest that you consider including some international fund recommendations in your fund basket, to make a complete offering. I’ve heard that ‘the only free lunch in investing is diversification’.
    Shall await your inputs on gold.
    Do you have a view on DSP Quant Fund? Are there similar / different smart beta funds available? Perhaps one more ‘food for thought’ idea 🙂
    Also, any view on market timing funds – like the PE ratio funds that are available, and other dynamic asset allocation funds. My personal experience with these have been poor, but that could be just me.
    PS: Just sharing thoughts based on what i’m reading / thinking about. I guess you’ll get to these topics, per your schedule / priorities.
    Good luck to the team,

    Good luck to the team!

    1. Vidya Bala

      Hi K,

      1. International funds – included in our recommendations.
      2. DSP Quant – we were privy to its construct before launch as it was a time we were working on some in-hosue factor models too. Backtesting worked well – against largecaps alone. It is a well-constructed smart-beta (comapred with whatever little is available today) struggling to perform in this polarised market. We need more time to study the model’s worthiness in our market. In non_ETF funds Reliance has and players like Edelweiss follow it without calling it one. Rest are equal weighted, not performing. ETF space – currently one worhty one, available in our reco.
      3. PE ratio/dynamic PE – expect a 50:50 allocation return from them. anything more difficult from this category as their models seldom allow participation in the second leg of any equity rally, which is what delivers the most
      Welcome to share. Appreciate it.

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