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Dhirendra Kumar on top funds for risk-averse and risk-on investors

If an investor is conservative but is trying to optimise his return, I will go with conservative growth funds. More risk-on investors, on the other hand, should go for aggressive growth funds. But remember not to over optimise or over-engineer it. Do not try to earn that 10% extra, 2% more because that will be putting your capital to risk.

ET Now|
Last Updated: Dec 26, 2019, 02.36 PM IST
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Dhirendra Kumar2-1200
If somebody is conservative but trying to optimise his return I will go with conservative growth funds, which have a full cycle of providing relatively consistent performance, says Dhirendra Kumar, CEO, Value Research. Excerpts from an interview with ETNOW.

What is the overall sentiment and what key trends are emerging as we head into 2020 as well as the new decade? Are we entering the New Year with or without confidence? What are some of the themes that you have observed.
I would say 2019 was a year of a lot of tweaking, a lot of regulatory changes and not a very inspiring market. Despite that, we have done not very poorly. The largecap funds, lead the pack among equity funds but even the multicap fund, which is the main stay of individual investors, is up 7-8%. So, it is not a disappointing year overall. Yes, the exciting part was that two years back, investors were excited and came in large numbers in smallcaps. The performance has been disappointing but not disappointing in a manner where it would hit smallcap investors directly. 2-3% down is not something that is going to drive away investors.

It has been a very lacklustre year in terms of performance. Fixed income funds saw all kinds of noise and uproar and disappointment. There too, we saw a lot of regulatory changes -- side pocketing, lowering of expenses. So, I would say that 2019 was a year of improving mutual funds and on the performance front, there was nothing to really feel very happy about, but not as disappointing as it looked a few months back.

I would say that in 2020, I do not have that foresight. We are always right with hindsight but I would say that we should look with optimism because I believe in reversion to mean and we have had two years of not so very inspiring performance. But the worst is behind us for fixed income funds. In the credit cycle, I don’t have the foresight and I do not think I will trust anybody on that front because it is very difficult to guess. I would think that if not 2020, any investor should take a couple of years’ view for equity. As for fixed income, I do not think it is easy to guess. The worst is behind us but it is better to err on the side of caution. Be extremely conservative with your investment, do not try to optimise your return on fixed income, be conservative and that is the way to go even in 2020.


What is the advice for SIP investors, who have been fairly patient and stuck it out, riding out the volatility? Should it be more of the same in 2020 as well?
Oh yes, investors do not have a choice because there are two parts to successful investing; First part is the factual bit which is to choose the right kind of funds for your investment timeframe; choosing equity for your long-term investment. Depending on your experience choose a conservative vehicle. If you are not very experienced, start with a balanced fund or with an equity income fund so that is a factual bit.

Be extremely conservative with your investment, do not try to optimise your return on fixed income, be conservative and that is the way to go even in 2020.

-Dhirendra Kumar


The other is the temperament. How do you behave when you see a big decline? It can vary from person to person. I would say that a good plan should never change. Your plan should not depend on the state of the market. Investing regularly in equity for your accumulation is a very obvious thing and it should be a non negotiable thing for all individual investors.

All said and done, our thinking changes with the state of the market and one should be conscious of that. We saw a change in the thinking of the overconfident investor in terms of buying the multibagger, investing in that smallcap fund and getting tempted to invest lumpsum rather than spreading his investments over time. When you are faced with a big decline in a brief period of time, you think otherwise. So I would say that regular investing is not a negotiable thing. One should be at it like that only and be a little more conservative with your fixed income fund because that is where we have got the nasty surprise after all these years of mutual funds running without any blow up.

I would say that investors should not try to optimise. The basic objective of getting into a fixed income fund which has turned large and is well on its way to become a mainstream fixed income vehicle for investors, has all the charms in terms of tax efficiency, liquidity, the ability to optimise returns compared to guaranteed fixed income alternatives in a similar period. Do not try to over-engineer it; do not try to earn that 10% extra, 2% more because that is putting your capital to risk.

What are the top three funds for slightly risk averse investors? Also the choices for someone who is risk-on and willing to allocate more to riskier small and midcap funds?
If somebody is conservative but trying to optimise his return I will go with conservative growth funds, which have a full cycle of providing relatively consistent performance HDFC Equity Savings, ICICI Prudential Equity Savings and IDFC Regular Savings.

They have actually withstood the test of time in a fairly consistent manner. These are meant for investors who are investing for the long run and they have never invested in any market linked investment in the past.

Looking at the other side -- the aggressive growth funds -- I would suggest Axis Midcap, Franklin India Prima Fund, the fund with the longest history and HDFC Small Cap Fund. Of course, it is trying very hard to remain a smallcap focussed fund. It has turned too big. So, I would be a little cautious about it but yes these are the ones which look promising.

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