The last 10 years’ performance reveals most returns in mid-cap and small-cap funds compared to their large-cap counterparts. In an interview with MintGenie, B Padmanaban, Founder, Fortune Investment Services explains that Indian investors have to make do with few research reports on mid and small companies compared to the investors in the US and UK.
Q. Many investors stay away from stocks. They prefer dabbling in mutual funds instead. In the light of current circumstances, which funds do you recommend as long-term investments and why?
Any mutual fund is a portfolio, a collection of stocks. While investing in stocks many investors seek profits in every stock which will never happen. Irrespective of parking money in any mutual fund, they are concerned about the net asset value (NAV) alone, so they are not worried about how each stock did well.
India is an emerging economy, so there is a lot of room for growth, especially, for small and mid-sized companies. Unlike developed countries like the US and UK, we have very few research reports on mid and small companies.
If you look at the last 10-year performance in mid & small-cap funds, you will realize how these funds generated mouth-watering returns compared to large-cap funds.
| Monthly SIP of Rs. 10000 from 13-Aug-2012 to 11-Aug-2022 | ||
| 10,000 * 120 = 12 Lakhs | ||
| Name | XIRR | Final Value |
| SBI Small Cap | 24.21% | ₹ 43,20,469 |
| Nippon India Small Cap | 23.83% | ₹ 42,32,869 |
| Kotak Small Cap | 20.96% | ₹ 36,23,557 |
| DSP Small Cap | 20.42% | ₹ 35,20,810 |
| Quant Small Cap | 18.81% | ₹ 32,26,890 |
| HDFC Small Cap | 17.57% | ₹ 30,18,550 |
| ICICI Pru Smallcap | 17.49% | ₹ 30,05,580 |
| Franklin India Smaller Companies | 17.02% | ₹ 29,30,813 |
| S&P BSE Smallcap | 16.52% | ₹ 28,52,108 |
| Sundaram Small Cap | 16.06% | ₹ 27,82,851 |
| HSBC Small Cap Equity | 14.93% | ₹ 26,18,667 |
| Aditya Birla SL Small Cap | 13.88% | ₹ 24,76,039 |
Believe in India’s stories and keep investing your surplus then wealth creation will become your habit.
Q. The constant sideways movement of stocks has made it difficult for mutual fund houses to earn good returns. Assuming that the ongoing geopolitical tension is unlikely to subside soon, do you recommend putting money in dividend yield funds?
Investing in a mutual fund is a long-term proposition, so do not look for what is hot today and might cool down a few months later. Instead, look at what is going to unfold in the long run. If it is available at attractive prices then invest heavily, if not stagger your investments through sporadic lump sum investments or systematic investment plans (SIPs).
There is no need to look for dividend yield funds. Someone is looking for high dividend-yielding stocks or funds they are more concerned about the dividends rather than growth. If the organization keeps finding an opportunity, it will be on a growth path so it will not give any more dividends. I will not suggest any dividend yield fund for sure.
Q. Inflation and recession cycles seem to be overlapping in near future. What financial advice do you recommend to tackle this situation?
Our Finance Minister keeps saying that India is out of recession. This proves the stability of our currency compared to other countries. Inflation is good for a country like India; our inflation has increased two per cent more compared to the US from two to eight per cent.
It is high time that you build your long-term portfolio both in stocks as well as in mutual funds for the next five to 10 years. Crude is also back to less than USD 100 level, things are slowly falling into place. The China + 1 story is intact for India.
Q. The effect of inflation is now transcending commodities. In the coming years, products and services are set to get more expensive. Do you suggest a revision in financial goals then?
Going by the adage, “This too will pass”. I believe all this is momentary; we Indians restrict daily usage and are cost conscious, so it is already started cooling off. It is only a question of months before we bounce back to manageable levels.
Most of the financial goals are made for the long term for roughly more than 10 years, no need to alter for this short-term aberration.
More are more we embrace technology and online products & services will have sustained inflation only not big inflation in my view.
