Do's And Don'ts Of Mutual Fund Redemption | NDTV Profit
#MoneyEduSchool's Arnav Pandya and #OptimaMoneyManegers' Pankaj Mathpal talks about the essential strategies and potential pitfalls associated with redeeming #MutualFunds.
Watch them in conversation with Tamanna Inamdar.
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TVTranscript
00:00 (upbeat music)
00:02 - Welcome, you're watching the Mutual Fund Show.
00:09 I'm Tamannaah Anamdar.
00:11 This is the show where we talk about
00:13 your mutual fund investments,
00:15 tell you what's happening in the industry,
00:17 and speak to the top experts
00:18 so you can make the smartest choices for your investments.
00:23 Now, the topic for today is an interesting one.
00:26 It's talking about redemption.
00:28 We are constantly talking about,
00:30 and the information you're constantly getting
00:32 is about investing into mutual funds.
00:35 And we know that these numbers are increasing month on month.
00:39 The latest SIP figures, S-I-P figures for the month of Jan
00:42 have crossed 18,000 crore rupees.
00:44 But is it always one-way traffic?
00:47 Should you redeem, and if, when?
00:50 Now, the trigger for this conversation
00:52 actually has come from some interesting data
00:54 highlighted by one of our experts on the show today,
00:57 Arnav Pandya, founder of MoneyEdu School,
01:00 and Pankaj Matpal, founder and CEO of Optima Money Managers,
01:03 are with us on the show.
01:05 And Arnav highlighted how your outflows for SIPs in December
01:10 were at the highest level in at least the last six months.
01:16 I'm just gonna pull up that data
01:17 to set the context for you first
01:19 on why we're talking about this today.
01:21 So for example, in July 2023,
01:25 your SIP outflows, and of course,
01:28 you had massive inflows as well
01:29 of 15,000 crores in that month,
01:31 but your outflows were 9,751.
01:34 Now, cut to December 2023,
01:37 and that's the data which we have
01:39 with us publicly available,
01:41 17,610 crores were your inflows,
01:46 but your outflows were 11,141 crores.
01:50 Now, there could be a number of reasons for this.
01:52 Remember, markets were at highs, at peaks
01:55 towards the end of the last year,
01:57 so maybe people felt it was a good time to redeem,
02:01 but we thought it's an interesting question
02:04 to address as well.
02:06 When should you be redeeming
02:08 your mutual fund investments, if at all?
02:11 So let me begin with that basic question to Arnav first.
02:15 Arnav, there could be any number of reasons
02:18 why your outflows were high in December,
02:20 but is it safe to say that when markets
02:23 are touching new highs, there will always be temptation
02:26 to take some money off the table?
02:28 - There is a tendency for people
02:31 to do a little bit of profit booking,
02:34 especially when markets show a sudden jump,
02:37 because if you see in December,
02:40 there was one very important catalyst which happened,
02:43 and that was the election results
02:45 of the five states which came in.
02:48 Now, following that, what you saw was a massive FII inflow,
02:53 which normally doesn't happen in December.
02:55 Normally, you find that December is like
02:58 slightly less activity month
03:00 as far as the institutions are concerned,
03:02 and then in January, after the new allocations
03:05 start coming in, things pick up.
03:07 But because of this election result
03:09 and what the market analyzed in terms of the impact
03:13 on the Lok Sabha polls for 2024,
03:15 you saw a massive change, one in terms of sentiment,
03:18 two in terms of the ways the FIIs behave.
03:22 So that pushed the market up.
03:24 And I presume that there is always seeing some element
03:28 of redemptions which will be coming in,
03:29 but the sharp spike or the difference which you see
03:33 in the month of December is probably due to the fact
03:36 that a lot of investors also thought
03:38 that I might as well do some profit booking
03:40 because this sudden rise is like an event
03:44 which I need to cash on.
03:48 - That's possible.
03:48 That's possible.
03:49 And maybe it was a good decision.
03:52 Maybe it was a bad decision.
03:53 That's very individual.
03:54 But having said that, Pankaj Matpa,
03:56 let me come to you on that broad question
03:59 that we're asking.
04:00 Now, I'm sure you get a lot of questions.
04:02 Should I redeem?
04:03 And I'm hazarding a guess,
04:05 but your standard answer must be,
04:07 don't remove the money unless you absolutely need to.
04:12 Should that be always the case?
04:14 If you have been a patient and a disciplined investor
04:18 and you see these kinds of opportunities,
04:21 should you then leave the entire portfolio untouched?
04:24 - No, exactly what you said,
04:28 that if you don't need money, then don't redeem.
04:31 That is what I believe in.
04:33 Second thing what Mr. Arnab said,
04:35 I fully agree with him that this time,
04:38 this looks like a profit booking only,
04:40 no other reason.
04:41 Usually we have seen when there is a rally
04:44 or there is a crash in the market.
04:46 In both the cases, investors start redeeming their funds.
04:50 So this time it is a profit booking.
04:52 But the question is that,
04:53 whether this should be a profit or no?
04:56 The answer is very simple answer.
04:58 If you have set your financial goal
05:00 and you are investing for that,
05:02 so you should stay invested until you achieve that goal.
05:06 Because if this kind of opportunities
05:08 will definitely come on your way,
05:11 but if you keep on booking profit from time to time,
05:16 then it may delay in achieving your objective.
05:20 See, if you feel that your portfolio has grown by 20%,
05:26 30% and you are booking profit,
05:29 then how your investment will double.
05:33 So if you let it grow and it enjoys the benefit
05:38 of our company, then only you will be able
05:42 to double or triple or multiply your wealth.
05:46 Second thing, the question went to book profit
05:49 or went to redeem units.
05:51 See, one thing is very simple.
05:53 If your investment is not able to achieve your objective,
05:58 you realize at any point of time
06:02 that you have invested in some schemes,
06:05 which are not as per your objective of investment,
06:09 risk appetite or your investment horizon,
06:12 it is not matching the investment scheme.
06:15 That may be one reason when you realize
06:18 that this is not the right scheme
06:20 or suitable scheme for you,
06:22 you can redeem your investment.
06:23 Second thing is that you invested for some goal,
06:27 but in between there's an urgent need of money,
06:30 that may be another reason to redeem units.
06:33 Or there may be a reason that there may be a change
06:38 in financial attribute of the scheme.
06:40 In that case also, you may miss when you start investing,
06:45 at time the scheme was suitable,
06:47 but now you're finding the scheme is not suitable for you,
06:50 so you may decide to redeem at that point of time also.
06:54 So that can be another reason.
06:56 But otherwise I believe that if your financial goal
07:00 is aligned with your investment,
07:01 you should stay invested.
07:03 Or one important reason can be rebalancing portfolio.
07:07 See, suppose you decided your allocation in equity
07:11 and debt should be 50%,
07:14 because of this kind of rally,
07:16 because of this kind of rally,
07:17 your allocation is now say 70%, 80%.
07:21 In such case also you can rebalance your portfolio
07:24 or that region to switch from equity to debt
07:26 or if required from debt to equity,
07:28 that can be another reason.
07:29 Otherwise I believe that one should stay invested
07:32 till the goal is achieved.
07:33 - Okay, so stay invested till your goal is achieved
07:36 and don't get distracted with what happens in the interim.
07:38 Arnab, what would you say to this question?
07:41 What are the top three reasons which justify a redemption?
07:46 And is what we saw in December one of them?
07:49 - So the three top reasons which I feel is one,
07:53 you need money for some purpose
07:56 for which you do not have liquid cash.
07:58 So at that point, instead of taking a loan or borrowing,
08:02 it is always better to redeem.
08:04 So look at the circumstances
08:06 and then decide whether the expense that you need
08:08 is important and it cannot be financed through
08:11 or it need not be financed through a loan.
08:13 Second part is that when you need to rebalance
08:16 your portfolio, because if you look at the markets,
08:19 you see what has happened in this kind of rally.
08:22 The small and the mid caps have run up
08:24 at virtually 40, 45% in a year.
08:27 And it is very likely that most portfolios
08:30 will see some sort of imbalance
08:33 as what it was initially constructed.
08:35 So at that point of time, if you are rebalancing
08:38 to ensure that both within asset classes,
08:40 between equity, debt, gold, et cetera,
08:43 you are rebalancing or even within the equity portfolio.
08:46 If you want to rebalance between various weightages
08:50 by market cap, that is the second reason
08:53 why you should do it.
08:54 And the third and final reason is that
08:56 your goal is achieved and you want to use
09:01 the money for the specific goal,
09:03 that is when you should be redeeming the money.
09:06 Otherwise, the whole benefit of see years long investing,
09:10 the point here is that the outflows,
09:13 which we have mentioned, are going in from the folios
09:16 where there is also regular investing going on.
09:19 So idea for regular investing is to slowly build your wealth
09:23 and not rely on market timing.
09:25 Now, if on the other side of the transaction
09:28 while you're trying to sell something,
09:29 you are trying to rely on market timing,
09:31 then it goes against the principle
09:33 which you are following.
09:34 So that is why one should be careful
09:36 and have a specific reason for taking the money out.
09:40 - So to explain it simply,
09:42 if you need to take a personal loan,
09:44 but have a good mutual fund investment,
09:48 you may as well not pay a high interest rate
09:50 on personal loan and you could then redeem
09:53 some of those investments for what you need.
09:55 But you have to be judicious about it.
09:58 Now, having said that,
10:00 there are some cases where there is an unusual run up.
10:03 Now, Pankaj, let me come to you on this.
10:05 Last year, for example, small cap funds
10:08 broadly gave superb returns.
10:11 Now, this entire year, there seems to be a consensus
10:14 that you may not see the same level of returns.
10:17 You had in some cases a 40% return
10:19 on some certain small cap funds.
10:22 In that sense, wouldn't it make sense
10:24 to reallocate at least, redeem,
10:27 and then push in your investments elsewhere?
10:29 - Exactly, this is rebalancing again.
10:33 You can pass it class.
10:34 See, in equity only, you realize that small cap
10:37 have outperformed large cap.
10:39 And you wanted to have a percentage allocation
10:41 in small cap, so you should definitely
10:44 rebalance your portfolio.
10:45 In that case, you can redeem from the small cap
10:47 or mid cap to invest in large cap.
10:50 But many times we have seen in some central funds
10:52 or thematic funds, unexpected rallies there,
10:56 and you have gained a lot from there.
10:59 So in that case also, you can rebalance your portfolio.
11:02 So this can be one reason for redeeming your units.
11:06 - Arnav, let me take that question to you.
11:10 You mentioned rebalancing broadly,
11:12 but let's go into a bit of detail.
11:15 If you have seen huge run-ups,
11:17 should you stay cool and calm,
11:20 knowing that perhaps you won't see that same kind
11:24 of a return going forward,
11:26 and believe in the long-term picture?
11:29 - No, that much is certain.
11:32 See, whenever you see any category of funds
11:35 showing abnormal returns, and when I say abnormal,
11:38 anything about 15, 16% qualifies as abnormal.
11:43 So if you're seeing 40, 45% return,
11:45 one thing is certain that this is not a sustainable return.
11:49 You might see it for one year, maybe two years,
11:51 but not for very long,
11:53 because the market goes through a cycle.
11:55 So that is one point.
11:57 The second thing here is that one needs to make
11:59 a distinction between getting out of a fund completely
12:04 and reducing your exposure to nil,
12:07 as compared to just rebalancing in terms of taking money
12:11 from one area and putting it into the other.
12:14 Because what happens is that when you look
12:16 at your portfolio overall allocation,
12:19 you, according to your needs,
12:21 you need it to be in a certain way.
12:23 So if that entire balance is changed,
12:27 you need to bring it to where you actually want it,
12:30 and which is what the rebalancing part is,
12:32 that you shift money from one place to the other,
12:35 either between asset classes or within equity itself,
12:39 and which is where that shifting a little bit
12:42 of money comes into play.
12:44 Now, the third question here is that, when do you do this?
12:48 You do not do this just because markets have run up.
12:50 There should be a specific time period
12:53 wherein you have fixed at which point
12:55 the entire portfolio is reviewed,
12:57 and then you make these changes.
12:59 Now, that brings a little bit of what you call
13:02 scientific process to this entire thing,
13:05 and which then justifies the fact that you are taking
13:07 some money from one area and allocating it elsewhere.
13:11 - Absolutely.
13:12 So keep that in mind when you are redeeming.
13:14 Don't get trigger happy with your mutual fund investments,
13:17 and perhaps some people, we don't know the details,
13:19 of course, because these are cumulative figures,
13:21 and what individual decisions were behind it
13:24 is not very clear, but a large number of people
13:27 clearly decided to cash out.
13:29 That's not necessarily the best strategy,
13:31 unless you need the money, you may as well not borrow it,
13:34 use your investments, or put your investments to good use.
13:37 All right, this is the part of the show
13:40 where we address your queries.
13:42 If you want to send in a query to us,
13:46 you can contact us on any of our social media handles.
13:50 Those numbers will flash on your screen as well,
13:53 and we'd love to hear from you.
13:54 So let's begin with what Vipasha Dubey has asked us.
13:58 Vipasha Dubey is aged 51, and her query is that
14:02 she wants views on the ICICI Pro Infrastructure Growth Fund
14:07 in the form of a SIP.
14:09 She's looking to invest 10,000 rupees a month
14:11 for three years, considering the government impetus
14:14 on infrastructure.
14:16 She says, "I'm currently investing
14:17 "in large cap equity funds."
14:19 So great question there, Vipasha, thank you so much
14:22 for sending it in to us.
14:23 I'm coming to Pankaj first to answer this query,
14:27 and it's a really good one, Pankaj,
14:29 because infra is the big theme,
14:31 and you've seen a lot of funds
14:33 launch infra-themed funds as well.
14:37 What do you make of her specific query,
14:39 and is it wise to invest
14:42 in a specific infrastructure-themed fund?
14:45 - See, it's a thematic fund,
14:48 so any point of time can see that different sectors,
14:52 different teams can opt from the broader market.
14:55 Because of government's policies and situation,
15:00 this looks a good theme,
15:03 so this viewer can definitely invest in this fund,
15:07 but because the fund is good in this category,
15:09 you see this is a well-diversified within this theme.
15:13 There are around 54 stocks
15:15 and spread across 12 sectors,
15:17 so it's not a big concentrated portfolio fund.
15:22 It is a well-diversified theme,
15:24 but as I said, any theme or any sector
15:27 can outperform the broader market for a certain period of time.
15:32 So if she wants to invest for the next three years,
15:34 this can be considered as a good fund.
15:36 She can definitely have allocation,
15:38 but she should redo the fund performance and the theme,
15:43 and as soon as the themes plays out,
15:46 she should exit from this
15:47 and should invest in the diversified fund.
15:50 - All right, but when will you know
15:52 that the theme has played out?
15:54 You know, this segues very well with our previous question.
15:58 You're just assuming, I mean, no,
15:59 if I was the biggest expert in the market right now,
16:02 do you know when the investment theme will play out?
16:04 Nobody knows.
16:05 It's linked with the India growth story.
16:07 - I agree with you, but suppose government
16:10 has some higher allocation in different sector,
16:13 or they are focusing on infra or CapEx,
16:18 so this gives you some indication
16:20 that these sectors can do better than the broader market,
16:23 but otherwise, I agree with you,
16:25 it is very difficult to know,
16:26 and that is why the investors,
16:29 suggestion is always that they should invest
16:32 in diversified funds so that fund managers
16:35 will take the call in this sector,
16:37 they should allocate more,
16:38 but because her question was very specific
16:41 and she seems to be positive on this sector,
16:45 and this is the thing that I also agree
16:48 that this sector has, or this theme has potential
16:52 to deliver better returns than the diversified fund
16:56 for this point of time,
16:58 so that is why I said that she can consider,
17:00 but I agree with you, it is very difficult
17:01 to understand the sector or which theme
17:04 will do better than others.
17:05 - So it's a bit of a risk with thematic funds,
17:08 Arnab, what would you advise Vibhasha?
17:10 - See, I want to make two big distinctions,
17:13 one is a good fund necessarily
17:16 might not be the right fund for you,
17:18 so looking at her portfolio,
17:21 I mean, where she has just exposure to large cap funds,
17:25 my solution would be that,
17:26 I mean, you go across the market cap,
17:28 but stick to diversified funds,
17:30 do not go for a specific theme,
17:33 so the fund is good, but is it right for her?
17:36 According to me, in that sense, the answer would be no.
17:40 The second point is that,
17:41 see, markets always run up ahead of expectations,
17:44 so if you look at this fund,
17:46 the one-year performance shows some 60% return,
17:48 the three-year performance was 40% compounded annual return,
17:52 so the question also is whether all these thoughts
17:55 about the infra boom and all is already baked
17:58 into the prices because markets always run ahead
18:01 of the actual happenings,
18:03 so in that sense, it's also not very clear
18:06 and nobody knows about this
18:08 because this again becomes a question of market timing
18:10 which nobody's sure about or nobody can predict
18:13 as to whether the gains are already there
18:15 in the portfolio holdings,
18:18 so which also increases the risk for the investor
18:22 as well as for a portfolio like this
18:24 where a thematic fund can cause a bit of imbalance also.
18:29 - Okay, so yeah, maybe you need to look
18:32 at your entire portfolio first.
18:34 Another question coming in from Vikram
18:35 and it's an interesting query.
18:37 Remember, if you want to send us queries,
18:39 the WhatsApp number's on your screen.
18:40 So he's age 33 and the query is,
18:42 how can a retail investor identify
18:45 if a fund follows growth/value/gap style of investment?
18:50 So, you know, very specific and interesting query there.
18:55 He's mentioned his current portfolio
18:56 with a horizon of 25 years, he's only 31.
18:59 So Navi Nifty 50 Index Fund,
19:01 he's putting in 15,000 rupees a month.
19:04 Kotak Equity Opportunities Fund, also 15K a month
19:07 and Tata Small Cap Fund, also 15,000 rupees a month.
19:10 Arnab, why don't you fill that first?
19:12 - So one way to identify the actual manner
19:17 in which a fund manager manages a portfolio
19:20 is by looking at what are the kinds of stocks
19:22 which he or she is including in the portfolio
19:26 and the way it is managed.
19:27 Now, as far as one of these components go, value investing,
19:32 there is a separate category of funds
19:34 which follow the value style of investing.
19:37 So that part is simple.
19:38 But even apart from that, there are many other funds
19:42 where they follow this style,
19:44 even though they are not necessarily value-oriented funds.
19:48 So looking at the portfolio and trying to understand this,
19:53 that is the main way in which one can actually find out
19:56 which style the fund manager is following,
19:59 but that requires a little bit of skill expertise
20:02 which a lay investor might not have.
20:04 So that might be difficult for an investor to do.
20:08 The second part is with respect to the existing holdings,
20:12 which the investor has.
20:14 Now, if you look at it, there is one large cap fund,
20:18 there is one large and mid cap fund,
20:19 and there is one small cap fund.
20:21 So if we break up the exposure,
20:25 then a very large chunk of the exposure is to the large cap,
20:28 followed by small caps, and the mid cap is very small,
20:31 because within the large and mid cap fund,
20:33 the mid cap exposure is close to 40%.
20:36 And the remaining is mostly in large caps.
20:38 So again, when a portfolio is being constructed,
20:41 one needs to look at and maintain
20:43 this kind of internal balance,
20:44 because large caps are steady, consistent companies
20:50 which grow their profits in a particular manner,
20:52 while small caps are more volatile in nature.
20:55 So ideally, what this portfolio would need
20:57 is a little bit of rebalancing
20:59 towards mid cap away from small caps.
21:01 - Okay, so more mid cap away from small cap.
21:04 I have no time to take that question to you, Pankaj.
21:07 Unfortunately, I have to wrap.
21:08 But yeah, thank you to Arnav and Pankaj for joining us today
21:13 taking all our queries, and of course,
21:15 the important question of where to and when to redeem.
21:18 If you have queries, reach out to us,
21:20 the WhatsApp numbers on your screen.
21:22 Until the next time, looking forward to seeing you again,
21:26 and thank you for watching.
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