NFO Period: August 12 August 25, 2021

[Pages:25]NFO Period: August 12 ? August 25, 2021

"You only have to do a very few things right in your life so long as you don't do too many things wrong."

- Warren Buffett

"Doing well with money isn't necessarily about what you know. It's about how you behave."

? Morgan Housel

Equity Markets go through Cycles, so does investor behaviour

What we do...

Maximum Financial Risk Euphoria; Want to buy more

Excitement; Over-confidence Thrill to invest more Optimism

Positive outlook

Complacency / Ignorance Anxiety Denial Fear Panic

Optimism Relief

Hope for survival

Depression; Want to sell off all Minimum Financial Risk

Buy low, Sell high

What we should do...

Increase allocation to other asset classes

For a volatile and unpredictable market...

Buy low, Sell high strategy

Increase allocation to Equity

Hedge with a portion of Arbitrage

To navigate through volatile market, investor should ignore the noise and focus on things under their control to build wealth in the long term

Asset Allocation

Diversification

Periodic Rebalancing

But does it really happen?

Instead, Investors end up Buying High & Selling Low

Valuation

Average Expensive Super Expensive

PE range for S&P BSE Sensex

15 - 20 20 - 25 Above 25

Avg. Monthly Net Inflow in Equity Mutual

Fund (Rs. crores)

4,339 11,986

2,163

? Highest average net inflows were seen when market was overvalued

? Most often, investor returns are lower than the investment returns

This difference is mostly attributed to the Behavioural biases.

Greed/Buy

...Repeat Until Broke !

Fear/Sell

Index: S&P BSE Sensex; Source : Historical PE value ? BSE India, MonthlyNet inflow inMF ? Internal data (for 96% of the MF industry): represents Equity net flow (including ETF) Data above is for March 2014 ? March 2021 period

Timing the market within a particular asset class like equities is difficult...

Equity Net Sales vs. 1-year historical return trend

Past 1 year return (%, LHS)

Total equity net sales (Rs. crores, RHS)

Inflows in equity-oriented schemes have broadly tracked the past 1-year returns historically

Attempt to time the market in the short term has led to below par results most of the time

For example, equity category inflows peaked in 2017 on the back of good past performance. However, markets witnessed volatility in the short term thereafter in 2018

(Source: AMFI, Internal analysis, Bloomberg. Historical 1-year returns is for Nifty 50 TRI Index. Equity net sales data is for equity/growth-oriented schemes which includes ELSS category but excludes Arbitrage and Hybrid EquityCategory)

...Even timing within broad asset classes is difficult in short term

Winners keep rotating between various asset classes

1 - Year Returns (%)

? Predominant equity allocation is a must for a longterm focused portfolio for wealth creation

? However, winners across asset classes keep rotating in the short term - making asset allocation timing a difficult task - need for having a right mix of these for consistent returns

Equities outperformed in 7 out of 13 years

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year

9.03 3.50 4.96 6.92 9.34 3.79 14.31 8.63 12.91 4.71 5.91 10.72 12.25

Debt

8.41 4.86 5.12 8.17 8.50 9.03 9.21 8.23 7.48 6.66 7.58 6.86

4.60

Cash

(Source: ICRA mfie, Crisil, Bloomberg. Debt represented by CrisilComposite Bond FundIndex, Cashrepresented by Crisil LiquidFundIndex and Equity represented by Nifty50 TRI Index)

-51.18

77.59 19.22

-23.87 29.26

8.07 32.90 -3.01

4.39

30.35 4.61

13.48 16.09

Equity

Relatively lower risk-return asset classes have a role in the portfolio

Rolling 3 years Standard Deviation

Nifty 50 TRI CRISIL Composite Bond Fund Index CRISIL Liquid Fund Index

Rolling 3 years Correlation with Nifty 50 TRI

CRISIL Composite Bond Fund Index CRISIL Liquid Fund Index

? Debt and Cash as an asset class display significantly lower volatility as compared to equities as an asset class ? The correlation of Debt and Cash asset classes with equities also has been relatively low to negative correlation across mosttime periods

Combining asset classes with different risk-return profile in a single portfolio, can help in generating optimal risk-adjusted returns

(Source: Crisil, Bloomberg. Standard deviation and correlationbasedon 3 years monthly rolling returns)

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