Mutual Fund Corner: Can focused equity funds replace stocks and PMS?

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In this episode of ‘Mutual Fund Corner’, Feroze Azeez, Deputy CEO of Anand Rathi Wealth Management will discuss whether focussed equity funds can replace stocks or PMS and what should be the strategy of your equity portfolio. Also, Tarun Birani, Founder & CEO of TBNG Capital will speak about the art of balancing DIY stock investing with goal-based long-term investment.

Retail ownership in the Indian stock market has jumped to a 12-year high of 9.6 percent. Money flow from households to markets — both directly and through mutual funds — is the highest in at least a decade and possibly ever, a UBS report said.

In this episode of ‘Mutual Fund Corner’, Feroze Azeez, Deputy CEO of Anand Rathi Wealth Management spoke about whether focused equity funds can replace stocks or professional managed investment portfolios (also called PMS). He also discussed the strategy investors can take up for managing their equity portfolio.

On comparison between direct equity, PMS, and mutual fund space Azeez said, “There is so much influx of money from the domestic side. So if you look at the comparison between direct equity PMS, and this special category — which was introduced a couple of years back in the mutual fund space — focused equity category. From a comparison standpoint, if you take PMS with greater than 500 crores multi-cap stocks, let us assume we take those schemes that 500 crore plus schemes actually, the focused equity category has outperformed these schemes over the last three years on a rolling return basis. Which is I think, a phenomenal thing. So about 1 percent extra return is what they have been able to generate.”

Plus, he said direct equities have very high risk and when the market is at the top, you might not want to take huge risks.

“Point two I think, at highs of the market, it is very critical that we reduce the risk marginally. So direct equity actually have very, very high risks when you create a portfolio of 8-10 stocks. So three different PMS’, which are very concentrated anywhere between 20 to 25 stocks, the Motilal Oswal, the Axis and the SBI are as concentrated as it could get, unlike the rest of mutual fund space.”

Also, Tarun Birani, Founder & CEO of TBNG Capital spoke about the art of balancing DIY or ‘Do It Yourself’ stock investing with goal-based long-term investment.

On DIY stock investing Birani said, “I think the first and most important part is it (DIY investing) requires a lot of expertise and time. I am not sure most of us have the capacity to give that kind of time and invest that kind of time to understand each of those stocks where we are investing. So, this is one of the most important parts of my mind.”

“Again, the most important issue with the DIY investing is behaviour management and behaviour management if you ask me today in a bull market, if I asked you a question that how much decline are you ready to bear and people will happily talk about 20- 30 percent drawdown is also okay with me. But when it comes to actual market fall in an environment like a pandemic, which happened last year, or in 2007 or 2008 environment of a Lehman crisis, people react to that situation in a very different way. So, the DIY investing is a very tricky one and so, the returns what they make in six months, they lose it in one day in that environment.”

On DIY investing versus goal-based long-term investment he said, “According to studies where investing yourself versus investing with a goal-based investing mindset, there is an almost 3 to 4 percent extra returns which can be achieved if one does a focused goal-based investing. Because then you would be rebalancing properly, you would be managing your behaviour based on your financial goals and not investing based on the market behaviour. Right. Again, a self-attribution bias is also abeyance when you invest with a goal-based mindset versus a DIY investing.”

For the full interview, watch the accompanying video…

(Edited by : Yashi Gupta)

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