Markets have rebounded and many of you who worried and stayed away have missed a smashing opportunity to clock 30 per cent gains from the bottom.
So have you missed the bus again? We don’t think so, because finally it is time in the market rather than market timing that works.
Through September last year to now on our shows we stuck our heads out to say - bump up your investment in equities. You won’t get a better opportunity. Buy all the way down - this is the best time to go heavy on equity. We just hope some of you did take this advice because if you did you would have managed to invest at low average prices both in equity funds and stocks and also made a neat little profit. But if you didn't, what now ? And if you did, should you book some of those gains? With markets rallying 38 per cent from their lows just six months ago, is it still time to go heavy in Equities is the question we're asking today.
Big Question: Should you still look at going heavy on equity?
We started this show in September and said continue SIPs or start SIPs in equity. Had you begun an SIP of Rs 50,000 on September 15 and invested each month on the 15, on April 15 you would have invested Rs 4 lakh and your value of investment would have been now at Rs 4.5 lakh. Had you put Rs 4 lakh in a lump sum on September 15, you would be down to Rs 3.4 lakh.
Clearly in a volatile market the SIP approach works. The other issue of course is that we do not have large lump sums to sink into the market, so by default it is the SIP which works for us.
As a nation we are still under-invested in equity.
# Indian portfolios are still low on equity
# By default we up 24 per cent of basic into EPF
# A home EMI soaks up most of the rest
# The average Indian household saving in equity is less than 5 per cent
# Why equity: year on year return has been 15-17 per cent per annum over the past 28 years on a rolling return basis
# At least half your money should be in equity if you are less than 50 years of age
So now the question is: what do I buy?
You could have made exceptional gains if you really knew how to pick up the winning stocks but for most of us who do not take the route to equity is undoubtedly Equity funds. Now let us see what Morningstar data throws up. If you had stuck to investing in the safest category of equity - large caps, you would have actually made 16 per cent returns per annum in the last 5 years. That means your 1 lakh in 2004 would have become be Rs 2.1 lakh today. Amongst the lot, this is how the top funds have moved. These are all 5 star rated funds from morning star.
# DSP BR Top 100 Equity and HDFC Top 200 both with a 19 per cent per year return.
Now if you had done an SIP over the entire period DSP BR would have given 14 per cent and in HDFC Top 200 13 per cent returns .
# Birla Sunlife Frontline equity: A lump sum investment would have given you 17 per cent returns and SIP returns of 12 per cent.
Clearly, both ways that you look, poiny to point or SIPs, long term that's 5 years and more definitely works in equities. And as most of us cannot really put in lump sums, SIPs are the best option to invest in equities. A 12 per cent to 14 per cent SIP returns is far better than any other asset class in this period. Discipline works.
We've maintained that the core of your equity portfolio should be made of large caps and diversified equity and for that return kicker you could look at sector funds. But have sector funds delivered? The results are mixed. It is really about getting your call on a sector right or wrong.
FMCG funds over 5 years have done well.
# ICICI Pru FMCG has given 22 per cent, your 1 lakh would be Rs 2.7 lakh. BUT SIP or a regular sum in the fund would have given you just 8 per cent returns. That's not home to write about.
# It is a similar story with Franklin FMCG. It did 17 per cent on point to point, and only 8 per cent with regular SIP investment.
While FMCG's have at least given positive returns, we simply do not like the data we've culled out for other sectors – retail, the big story of last year.
# Kotak Lifestyle Fund is down 11 per cent per year. Your Rs 1 lakh 2006 is now Rs 70,000
# Birla Sun Life Gen Next is down 2.5 per cent, Rs 1 lakh is now Rs 92,000
Tech Funds have bounced back after being trashed post the dotcom bust.
# DSP BR Tech is up 13 per cent per year over 5 years; Rs 1 lakh is now Rs 1.84 lakh and SIP returns are pretty lower at 1.2 per cent.
# Tata Life Sciences and Tech is up 10 per cent turning Rs 1 lakh into Rs 1.6 lakh, but SIP returns are lower.
And things can go very wrong if the sector and fund call is wrong. For example JM Hi Fi Growth, an infra fund is down a huge 24 per cent per year over the past 3 years. Your Rs 1 lakh in 2006 is now Rs 44,000 and most infrastructure funds are negative. I would recommend that you leave sector funds to the last 5 per cent of your portfolio. What this means is - complete your Nifty BeES and diversified equity investment before you even look at sector funds.
You have to diversify, just like a well balanced meal. You have to know your appetite and what's good for your health. Not overeat or indulge in one thing. And you got to keep a check on your health, just like you must on your investments. Till next week, goodbye and keep in good financial shape!