Transcription
Hi friends, a lot of you might be investing in mutual funds today so that tomorrow you can make some good returns and you can fulfill your long-term dreams. For example, by 2030 you might want to settle down, have a nice house. By 2040, you want to send your kids to foreign universities. By 2045, you might want to retire from your jobs or career and sit somewhere on a nice sunny beach and might be sipping let's say pina colada or whatever drinks you prefer.
Now it's very important for us to get our long-term mutual fund strategy absolutely nailed down, right? And for this today I'm having a conversation with one and only Managing Director of LIC AMC, Mr. Nilesh Shah. Thank you so much, Nilesh, for giving your time. I'm extremely, extremely thankful.
Um, sir, I wanted to start with, um, from a mutual fund perspective, if I want to generate good returns over a long period of time, it goes without saying that the Indian economy must do well. And current forecast says that we're likely to grow at 6 to 7% from a GDP perspective. What is your confidence level? What would you say to mutual fund investors that, you know, India is a long-term story and we would like to sustain this growth over a 10, 15, 20 years of time period?
So, R&B, thank you for having me over here. There are two parts to your question. A, how India's growth story will pan, and B, how investors will benefit out of it. If we look at India's growth story, there is sum happening. One, talent of India is now staying back in India. They are becoming entrepreneurs, businessmen, scientists, government servants. Second, we are backing this talent with infrastructure buildup. Roads have been built, power have been added, airports have been built, metro is being built. We are leveraging our waterways and most importantly, we are willing to provide capital to our entrepreneurs. IPO market, venture capital, private equity, there are so many options available today for someone to raise capital, right? Growth has happened whenever talent meets capital and is supported by infrastructure. Right now, if we believe that government of India is going to create growth, it is the 140 crore Indians which will create the growth, right? Some of us will become employees. Some of us will become businessmen. Some of us will become government servants. Collectively, all these people coming together and working towards Vixit Bharat will create Vixit Bharat.
Right now, as an investor, how do you benefit out of it? Mutual fund will provide a vehicle, but absolutely the same thing happens in mutual fund where a fund return and investor return is not the same thing because many of times investors get out of the train before it reaches their destination, right? So, it's important that we remain invested. We show our continued confidence in the Indian economy.
Absolutely. So, linked to this question then, um, I don't know whether you would like to answer it or not, but I would still ask, um, from a long-term perspective, let's say 2040, so we are 15 years away, what sort of growth we could see in our broad indexes like Nifty or Sensex? I know 6 to 7% real GDP growth, 2 to 3% nominal. If you add, could you add some bit more on top of that?
So, again, R&B, these are all guesses, of course. And, uh, the thumb rule is that your corporate profit growth will be equivalent to your returns, right? Over a long period of time, if Sensex, Nifty has delivered around 15, 16% return, that's because in that intervening period, corporate India's profitability grew at 15, 16% compounded, right? Now, normally, corporate India's profitability growth is linked to nominal GDP growth of the country. So, my feeling is that returns will vary in phases. It will be linked to corporate earnings growth. And from here till, let's say, 2047, we should be somewhere in high single digit to low double digit, right? Right.
Now, I will still say the most important thing is not the fund return, but your return in the fund. If you keep on jumping from one place to another place, you are unlikely to optimize your return, right? If you give time, if you withstand volatility, stay invested for longer period of time, you are likely to generate return, right? Right.
Okay. Pan, thank you for that. Um, so this is about the Indian economy. And let's now move to, you know, cross the Atlantic and go to the United States. A lot has been talked about the United States economy as of now. And we all know their debt is crossing $37 trillion, much higher than their GDP. Debt to GDP has gone and crossed to 120% and whatnot. India is literally at 56%, 57%. We are at a much better, you know, space. Um, so from a US economy perspective, what is your view? Does the debt worry you, uh, from an investor's perspective, or do you think that's that that should be managed somehow?
So, Hindi film dialogue. Now, please remember that US is a $30 trillion GDP country. That $37 trillion, yes, it is high, but it is manageable. It is the most innovative country. It's the most blessed country. No neighbor can attack us. It's protected. It is endowed in terms of natural resources. And the best part about US is that it still attracts the best talent of the world. The best of the Indian brains are found in US. The best of the African brains are found in US. The best of the European brains are found in US. As long as it attracts talent, it will find a way. Has US gone to this level of debt? Not except during World War I and II. So, debt is high. But with their innovation, their size, will they be able to come out of it? My answer is yes. They'll find a way, right? Right.
Right. Okay. Okay. As I think Winston Churchill mentioned that America always finds the right way after exploring all the wrong ways. That's a very good saying. I remember that. Yeah. Um, other than India and US, is there any other global market that you think is quite attractive for the long term?
So, undoubtedly, China is one market which we have to keep a watch. They have been tremendously fast-growing economy, very innovative. Today, they are way ahead in technology in many areas, right? So, certainly, China is one market which one should keep a watch. But more importantly, when you are investing abroad, uh, it's better to go into a diversified fund across emerging markets, across technology sector, right? Across frontier markets. They all carry different risk and different return. But if your call comes right, allocation is right, you can make money, right? Right.
Okay. So, let's come back to the Indian market now. And I'm just speaking from a mutual fund investor's perspective. Um, if I come to you and I say, I'm a beginner investor. I have, let us assume, 10 lakh rupees. It's my hard-earned money. And I want to see this blossoming over the next 15 years because I want to be party to the India's economy. And therefore, uh, please suggest some strategy, mutual fund strategy. Which type of mutual fund should I target? You know, because right now, there are like so many mutual fund categories. It's even becoming more complicated than picking a stock, if I'm being very honest. How do, what would you say to that investor that for long-term, and if, and if I'm not getting down the train, as you initially said, what would you say should be the mutual fund strategy?
So, R&B, there's no one size that fits everyone. Fund mindset. Now, if you come to me, I'll say that you put 10 lakh rupee in multi-asset allocation fund. It's a fund where India's best fund managers provide you asset allocation service between debt, equity, and precious metal. Normally, private bankers give this service to the rich clientele, right? Up to fund manager service. The second and more important conversation I will have that you are going to earn money. So, please ensure that income minus expenses equals to savings equation, follow you. Follow income minus savings equals to expenses. Please inculcate the habit of savings. Do regular investment of that also. Mhm. And then, little drops of water make an ocean. You will see the multiplication. Third, I may even suggest, R&B, look, I won't have time for you. And looking at your age and your potential, I think you need services of a financial expert, right? I will recommend you to a mutual fund distributor who can sit with you, understand your risk profile. My litmus test, R&B, is very simple. If in COVID time you bought, you are risk taker, right? If in COVID time you sold, you are conservative. If in COVID time you didn't do anything and allowed your existing thing to continue, you are average risk taker. Don't cheat yourself, right?
[Music] People who were conservative when the past 6 months returns are good, they suddenly become risk-takers. Sir, a reason, the, the one major change I see right now is that there is so much content on social media which is telling people a lot of things. Yes. And what happens is, as humans, we like good news. We like to ride the rally. We like to, you know, make money, quick money. And that's a very, very, very nature of a human, right? And controlling that emotion is extremely difficult. And maybe once we fall down and we see that, oh, we made a mistake because we listened to so and so, and maybe he or she made good money, but, you know, it's not for everybody. And the moment that realization happens, we pull ourselves back and say that, potentially, it's not a game for us. So, R&B, why don't we learn from others' experience? The story which you have told me is true, but it keeps on repeating again and again, again and again, again, again, again. Let's start with the basic fact. Other than your parents, no one else is interested in your well-being, especially financial well-being. Agreed. Buyer beware. That's the cardinal rule in any market. And financial markets are no different, right? For example, I do shows like this. Am I really interested in the well-being of your listeners? Answer is no. I'm here to sell mutual fund industry. I want your listeners to invest into mutual funds. That's why I'm doing the show, right? So, you have to discount me. And in that case, we go by the data and facts. Absolutely. Rather than listening to somebody's opinion. And, and I think that's, that resonates very well with me because, Nilesh, I don't know whether you've ever seen my videos. I wouldn't expect you to. But I've done 300 plus videos on my channel. And you won't believe, every single video, every word I speak, 90% times, 98% times, 95% times, I try to bring the data because I know you can't argue with data, right? Otherwise, I'll make things up. And it's of no use to you because you cannot validate it. At least when I say data, you would go and do some research. So, R&B, my request will be, at least accept things by passing the smell test. See, in my early days of career, I used to see people walking and sleeping and saying that I want to put 500 crore in market, 1,000 crore in market by sleeper. I don't know what was their motivation. There are people whom you know, by listening to, by watching them, you'll be able to figure out that these guys are not telling truth, right? If I try to mis-sell something to your listeners, they'll figure out. Anything which doesn't pass your smell test, please don't invest. Anything which you don't understand, please ask more questions. Don't invest till such time you are convinced. In fact, Warren Buffett gives this advice when you invest in a stock, but that's applicable to any other instrument. On a piece of paper, write down why have you invested in that instrument. When you have to speak for one hour, you can speak extempore. When you have to speak for five minutes, you have to prepare for one hour, right? Right. Why did I invest in this fund, this instrument, this stock? It will help you avoid mistakes, right? Right. That is brutally honest. So, thank you for that.
I want to come back to mutual fund selections. There is a lot of confusion. At least I find it quite confusing, mainly because if you see, if you look at the past returns, every year the winners keep changing. Uh, expense ratio fluctuates almost every single year. So, if you have chosen a mutual fund today on the basis of expense ratio, tomorrow, there is no guarantee. What do you look in mutual funds when you compare? What are the parameters that you would say that, you know, these are the two or three top things that you need to look at?
So, if you are a selector of Indian cricket team, will you select 11 Sachin Tendulkars to go out and play? No, absolutely not. There has to be team composition. Will you take 11 Jasprit Bumrahs to play? No. And even if you had a choice of getting 11 Sachin Tendulkars, do you think they'll be able to win every match? Answer is no, because a team wins the match. Good bowlers, good batsmen, good fielders, good wicketkeeper, a good captain, a good coach, so many things go behind that portfolio which go and win the match. Now, when you are building a mutual fund portfolio, do you want to invest in the best performing stocks, best performing funds? Everyone wishes that. Is that possible? It effectively means that Tendulkar will keep on scoring century after century in every match. Even for him, it was not possible. How can a fund manager do that? So, essentially, you benchmark yourself with your objectives and see how the fund is performing vis-à-vis benchmark index. Some may outperform by big margin, some may outperform by small margin. Someone may take higher risk, someone may take lower risk. You need wicketkeeper, you need bowler, you need batsman, you need fielder, you need captain. So, create a portfolio. As long as it meets inflation, as long as it gives real return, your job is done, right? Best performing fund, invest well, that doesn't work, right?
Sir, even if I look at consistent rolling returns, if I say last five years, may I don't know, mid-cap or small-cap gave me the top three performing funds, and that consistency is giving me some indication that the mutual fund house or the fund manager somehow has got something right. We don't know what that may be from an outside looking inside, but there, there definitely something that is telling us that consistently, if you look at the rolling returns, somebody has done better than the benchmark and other peers as well. Would that not be a good place to look at mutual funds?
So, undoubtedly, instead of looking at just point-to-point return, rolling return is a better bet. But at the end of the day, roller coaster, average incline, decline, but at the point, incline could be far higher, decline could be far lower, right? Right. It is up to you how you withstand the roller coaster journey, right? Right. If you get in between, if you get out in between, you're bound to get hurt.
That's really good. Thank you for that. Nilesh, by, I've heard a lot about your interviews, listened to the talks that you've delivered, and I've been thoroughly impressed. One of the consistent theme that I, I could observe from your, um, talks is the asset allocation. Multiple times you have reiterated that when you know, especially when the markets fall, you say, we have to go back to basics and remember the mantra, which is the asset allocation. Can you just give us a view and break it down in, in a simple language so that we understand what do you mean by that?
So, we all practice asset allocation in our food habits for our physical health. Everyone likes sweets, but people don't only eat sweets. Correct. And especially when you have diabetes, you simply avoid them. Everyone likes like samosa and kachori. But you just don't stuff yourself with that. We all create a well-balanced diet of fruits, dal, chawal, dal, some sweet, some salad. That creates the asset allocation for our body and the mind, right? Where we get taste and we also get nutrition. The same thing is true in financial health. You don't put everything in equity because it has delivered the best return. You put something in debt, something in equity, something in gold, something in real estate so that you have asset allocation which will suit your risk profile, which will meet your investment objective. Right now, there are investors who put 100% in equity. By, I also believe I can go and hook a ball like Tendulkar, right? Right. So, don't try to mimic someone who has higher risk-taking ability. Please follow your dharma of asset allocation based on your investment objective and risk-return profile. And to just go and invest in multi-asset allocation fund, give the time to the fund manager to manage asset allocation for you, right?
Okay. Thank you so much for that. Um, in the interest of time, I'm just going to move to the last section that I generally do with my guests, which is the rapid fire. I ask you a question, give you two answers, and you choose one out of it. Right. So, India or US market, which is a better long-term play from now from here on?
Saindust. [Music]
Momentum or value investing, which is which suits you the most personally?
Value investing. Value investing. But that doesn't mean that momentum investing is bad. It's just that I don't know how to play.
Sure. Sure. Sure. When it comes to stock picking, would you trust the data or your instinct or your gut feeling?
You combine both. Look at the data, but don't ignore your gut. The smell test has to be passed.
A lot of people do trading using leverage nowadays. Um, do you think trading using leverage is good or or bad? I mean, what's your, is there any view?
Leverage is a double-edged sword. For ordinary investors, ordinary speculators, traders, I will say leverage is injurious to your financial health.
Brilliant. Um, if you were to say to people in their 20s, uh, work for money or work for your passion? Because 20s is the age where you are also looking for money, right? You, you don't have, you've not earned enough, and also at the same time, you're very passionate about something. So, would you say work for money, work for passion?
Always work for passion, but keep money also as part of your passion. There's one interesting quote, money is not everything in life. Money doesn't matter, but make sure that you have made enough money before you do such things. Yeah.
Um, in your view, early retirement or never retire?
Never retire.
Are leaders born or leaders made?
Tough question. I was not a born leader. I was made leader.
I was about to ask you, do you think, do you consider yourself a made leader?
No. I, I was a leader who was made by circumstances and superiors. Right.
Um, Bitcoin, do you think it's hyped or do you think it could be a future currency for the world?
Uh, I'm not an expert over there. In some sense, Bitcoin is greater fool theory because you will buy only if you believe someone else is going to buy from you at a higher price. Uh, or maybe for someone who is a supporter of Bitcoin, they'll say it's freedom from excessive monetary printing. I think the verdict is too early to give anything.
Amanis or Adanis, who do, who do you like? Whose leadership styles do you like at the minute?
When both of them are excellent in various respects, but what combines them is not just the alphabet of surname, it's the passion for execution. What they have executed is truly remarkable.
Last one, uh, 2047, India can be a developed country. Do you think, are we doing enough to get there, or do you think we should be doing more?
Dilman, more. But if Vixit Bharat is the responsibility only of our honorable Prime Minister, then it will be difficult to achieve. The day Vixit Bharat becomes a dream of 144 crore Indians and we all work together to achieve it, I think it will happen much earlier than 2047.
On that positive note, um, I think I've thoroughly enjoyed this very short conversation with Nilesh G. I hope you all found it very, very insightful. And if you did find it insightful, like this podcast. I hope to see you in my next one. Until then, keep rocking.