Money Wise: Swim Against The Current

I’ve had a few interesting conversations about investor behaviour this week. And frankly, I don’t think people give you, the investor, enough credit. I’ll tell you why in just a minute. The context first. The starting point of the discussion was the increase in stoppage of systematic investment plans in the month of October.

This is a derived number because the Association of Mutual Funds in India refuses to share details of net inflows into mutual funds via SIPs. You probably saw headlines like: SIP Inflows Decline After 16 Months in November. That’s because the gross inflows through this route fell to Rs 25,319.66 crore from Rs 25,322.74 crore a month before.

It is of great interest in several circles, because for the mutual fund industry, this SIP figure has become something of a bragging right. It has, after all, fuelled the much-vaunted domestic institution buying that has counteracted the flood of foreign institution selling since the end of August.

A look at the details of SIP accounts shared by AMFI will tell you that, indeed, there are more cancellations of SIPs than there have been in recent months. New SIPs registered in November stood at 49.46 lakh. The total number of SIP accounts at the end of November stood at 10.22 crore, up from 10.12 crore in October. That means 39.14 lakh SIPs were cancelled during the month. Described as a ratio, the cancellation rate was over 79%. (Cue the sharp, shocked intake of breath and exclamations of worry!)

I’m not worried by this, and you, the investor, shouldn’t be either. The reason I think you aren’t given enough credit is that your behaviour in the past few years has been starkly different from what was prevalent even a decade ago. The data I’ve looked at over the past couple of months, when equity markets in India went through a correction, was that a substantial amount of money was pushed into equity mutual funds through lumpsum investments. In other words, investors bought the dip.

Net inflows into actively managed equity mutual funds in November stood at Rs 35,943.5 crore, despite a drying up of new fund offers that have driven inflows in recent months.

And what’s more, if you let your SIP continue in November, so did you. The very nature of the SIP is that it allows you to accumulate more units of the scheme you’re investing in when the chips are down. Which is why, when everybody and their neighbour are talking about SIP cancellation, you shouldn’t pay attention and should, instead, choose to swim against the current.

This mindset sometimes also helps when building a stock portfolio. I spoke with Nimesh Chandan, chief investment officer at Bajaj Finserv AMC, on this week’s episode of Money Wise about his approach to portfolio selection. He discussed megatrends and how to combine a bottom-up and top-down strategy to get the best results.

There’s some interesting information that came through in the portfolio disclosures of mutual funds too. We found that cash levels with the industry fell marginally on a month-on-month basis to Rs 1.47 lakh crore from Rs 1.49 lakh crore.

And while some prominent mutual funds that had taken a cash call in the run-up to the correction in equity markets have doubled down on their decision, others have deployed a significant amount of cash. The Parag Parikh Flexi Cap Fund continued to have elevated levels of cash in November, with equity accounting for only 66.8% of assets under management at the end of the month, compared with 67.7% at the end of October. Meanwhile, Quant Flexicap Fund’s cash position dropped to 0, and equity rose to 94%. Interestingly, the cash call seems to have worked for PPFAS, with the fund having generated positive returns of 3.3% since the start of September, compared with a decline of 1.7% for the benchmark Nifty 500 and a decline of 9.1% for the Quant Flexicap Fund. Of course, bear in mind that a three-month period should in no way affect your decision to invest in a scheme.

In the week gone by, there was also an interesting update on the EPFO. Turns out, there’s a plan to allow you to withdraw money from your pension fund from an ATM starting in 2025. It’s an interesting thought, but the organisation may be better off trying to first fix the high number of rejections being experienced by those attempting to withdraw their hard-earned savings.

As we wind down to the end of the year, it’s a good idea to start utilising the travel miles you’ve accumulated over the course of the year. You’ll be lured by many offers, and you should, of course, go out and spend, but a balanced approach will bear dividends.

In the week ahead, on the Mutual Fund Show, we’ll discuss the concept of internal rate of return—described as XIRR—and why it is different from a point-to-point return. And we’ll also help you figure out how to read a fact sheet.

With that, as always, happy saving!

Thank you,

Alex Mathew

I’ve had a few interesting conversations about investor behaviour this week. And frankly, I don’t think people give you, the investor, enough credit. I’ll tell you why in just a minute. The context first. The starting point of the discussion was the increase in stoppage of systematic investment plans in the month of October.

This is a derived number because the Association of Mutual Funds in India refuses to share details of net inflows into mutual funds via SIPs. You probably saw headlines like: SIP Inflows Decline After 16 Months in November. That’s because the gross inflows through this route fell to Rs 25,319.66 crore from Rs 25,322.74 crore a month before.

It is of great interest in several circles, because for the mutual fund industry, this SIP figure has become something of a bragging right. It has, after all, fuelled the much-vaunted domestic institution buying that has counteracted the flood of foreign institution selling since the end of August.

A look at the details of SIP accounts shared by AMFI will tell you that, indeed, there are more cancellations of SIPs than there have been in recent months. New SIPs registered in November stood at 49.46 lakh. The total number of SIP accounts at the end of November stood at 10.22 crore, up from 10.12 crore in October. That means 39.14 lakh SIPs were cancelled during the month. Described as a ratio, the cancellation rate was over 79%. (Cue the sharp, shocked intake of breath and exclamations of worry!)

I’m not worried by this, and you, the investor, shouldn’t be either. The reason I think you aren’t given enough credit is that your behaviour in the past few years has been starkly different from what was prevalent even a decade ago. The data I’ve looked at over the past couple of months, when equity markets in India went through a correction, was that a substantial amount of money was pushed into equity mutual funds through lumpsum investments. In other words, investors bought the dip.

Net inflows into actively managed equity mutual funds in November stood at Rs 35,943.5 crore, despite a drying up of new fund offers that have driven inflows in recent months.

And what’s more, if you let your SIP continue in November, so did you. The very nature of the SIP is that it allows you to accumulate more units of the scheme you’re investing in when the chips are down. Which is why, when everybody and their neighbour are talking about SIP cancellation, you shouldn’t pay attention and should, instead, choose to swim against the current.

This mindset sometimes also helps when building a stock portfolio. I spoke with Nimesh Chandan, chief investment officer at Bajaj Finserv AMC, on this week’s episode of Money Wise about his approach to portfolio selection. He discussed megatrends and how to combine a bottom-up and top-down strategy to get the best results.

There’s some interesting information that came through in the portfolio disclosures of mutual funds too. We found that cash levels with the industry fell marginally on a month-on-month basis to Rs 1.47 lakh crore from Rs 1.49 lakh crore.

And while some prominent mutual funds that had taken a cash call in the run-up to the correction in equity markets have doubled down on their decision, others have deployed a significant amount of cash. The Parag Parikh Flexi Cap Fund continued to have elevated levels of cash in November, with equity accounting for only 66.8% of assets under management at the end of the month, compared with 67.7% at the end of October. Meanwhile, Quant Flexicap Fund’s cash position dropped to 0, and equity rose to 94%. Interestingly, the cash call seems to have worked for PPFAS, with the fund having generated positive returns of 3.3% since the start of September, compared with a decline of 1.7% for the benchmark Nifty 500 and a decline of 9.1% for the Quant Flexicap Fund. Of course, bear in mind that a three-month period should in no way affect your decision to invest in a scheme.

In the week gone by, there was also an interesting update on the EPFO. Turns out, there’s a plan to allow you to withdraw money from your pension fund from an ATM starting in 2025. It’s an interesting thought, but the organisation may be better off trying to first fix the high number of rejections being experienced by those attempting to withdraw their hard-earned savings.

As we wind down to the end of the year, it’s a good idea to start utilising the travel miles you’ve accumulated over the course of the year. You’ll be lured by many offers, and you should, of course, go out and spend, but a balanced approach will bear dividends.

In the week ahead, on the Mutual Fund Show, we’ll discuss the concept of internal rate of return—described as XIRR—and why it is different from a point-to-point return. And we’ll also help you figure out how to read a fact sheet.

With that, as always, happy saving!

Thank you,

Alex Mathew