‘ You could have done better ’

Finally, things changed on Friday evening. The Finance Minister, declared some steps (stimulus) for the ailing economy. She addressed the concern over the FII taxation by rolling back the enhanced surcharge. Thus making LTCG, STCG and derivatives tax back to where it was. Along with it she declared several measures to help banks, NBFC, Auto, Housing and Infra sector. Clearly, markets have something to cheer in the coming days, but the global turmoil can play a spoiled sport.

Over the weekend as I was discussing this with friends and family. In one of my conversation with a friend, he mentioned that these things don’t matter to him as he runs a SIP. For him it was auto investment and so market volatility did not matter to him. So, he meant that if your car is moving in auto mode, potholes and bumps don’t impact you. I thought it was exactly the other way round. You are impacted more because you neither steer nor manage the speed. Also, money goes month on month so one does not get the best of the benefit of a downmove in the market.

But let the data do the talking. So, I assimilated the SIP data over last 5 years. The areas of the study were:

• Month on month money flow in the SIP since 2016
• Market cap wise scheme performance of top 10 fund houses.

I have summarized the study largely into these charts and tables. They tell a very interesting narrative about what has transpired via one of the biggest money guzzler in Indian capital markets over last few years. The study around 75% of the actively managed AUM.

Some observations based on this:

• The inflows in Mutual funds increased largely post demonetization. Currently to equity and equity linked AUM is near 7,50,000 crores. Out of this nearly 50% is Large Cap, Index Funds /ETFs, Hybrid Funds and Multi Cap Funds.
• The total SIP inflows since April 2016 is nearly 235000 crores.
• The early part of the upmove in the markets saw lower contribution to SIP, but once large part of the SIP was at higher Nifty levels. The consolidation in Nifty with higher SIP contribution lead to average buy price at higher levels.
• In FY 17 – 18, out of 195000 crores of Mutual Fund inflow, 62000 crores were SIP, while in FY 18 – 19, out of 155000 crores of Mutual Fund inflow, 92000 crores were via SIP. This is indicating less contribution of discretionary investments. So, smart money was not flowing in Mutual Fund equity schemes.
• In terms of returns considering monthly inflows into the funds, it has been unable to beat the 10 Year benchmark or Government Securities returns in any time frame and any fund format. Government securities are least risky investments thus have lower yield. After investing in equities and taking all the risk you are still nowhere near the G- sec returns. Could it get more futile.
• On a 5-year horizon, while large cap and multi cap funds have seemingly done well, it is not half a good as 10 Year paper.
• On a 1, 2 and 3 year horizon the numbers are extremely dismal, somehow trying to stay in green.
• While such investments are sold under the veil of long term investment, I suppose 5 years is long enough, to get some returns.
• The returns indicated in factsheet are for a particular time period and not necessarily the fund returns that you have made. Those returns are much better than SIP returns. That means Mutual Fund performance is not poor, it is this format which is flawed.

Money poorly invested is worse than spending, you missed the experience as wall. After looking at these returns, thought process and method of investment, I clearly thought that the SIP holders could have clearly done better than what they are doing.

Happy Trading.

Cheers!!!