All Izz Well
The Mutual Fund industry, its various players, its various products, its clients and its ever-changing regulations have always been the focus of my professional life. But the one thing that I have never been able to bring even an iota of attention to is the Net Asset Value of the various schemes I have invested in, and subsequently their performance in the short and midterm. It is not that I am a casual investor in MFs. Far from it, almost my entire savings, net worth and the financial well-being of my family is tied to Mutual Funds. Am I a negligent investor? In the eyes of a few observers, I may appear to be so. Just ask me the NAV of my investments and I would have only the faintest idea. I also rarely know the performance of my various schemes. Many a time, when some friends ask me my thoughts about a few schemes, they (and I) discover that I have absolutely no knowledge about how that particular scheme has been performing over the past 1-3-5 years.
Is this approach normal? Depends on what is taken as normal. For me, ‘normal’ is basically two issues :
- Asset Allocation : Approximately 50:50. Once in a year, I spend around 15 minutes reviewing this. Anything like 45-55 or 55-45 does not bother me. If it is 60-40, then I invest any surplus money only in debt funds, or I redeem from the ‘under-performing’ equity funds for any cash flow requirement. I am not negligent about this. In special situations – like March/April 2020 or during the Global Financial Crisis of 2008, I take prompt tactical calls.
- Fund performance is impossible to predict. In fact, obsessing over fund performance is a distraction for the long-term investor. It is tempting to switch funds based on past performance or star ratings. But it is extremely difficult to attribute reasons for fund performance and then assume that these attributes (sector rotation and security selection in case of equity or credit and duration management in case of debt) will continue over the next few years as well.
Scheme selection however depends on the strength of the AMC’s reputation as a responsible process oriented fund house over a long period of time. Once such a reputation is earned, it is best advised to stick to such an AMC even if performance is middling over sustained periods of time. Remember, not all your schemes will perform in such a manner.
Diversifying across fund houses, scheme categories and styles of management should ensure that as an investor you are not trapped by one underperforming scheme. Over the long term, what we need is market aligned returns.
Since I am personally convinced that Asset Allocation works and Fund performance is impossible to predict, such a strategy works. Please remember, that this works for me as an investor as my mind is attuned to this. I do not seek market topping performance, nor do I have regret about investing in an asset class that may be a laggard in a particular cycle. I believe my strategy balances risk and ensures that I do not get carried away by headlines and gossip. For me, this strategy ensures that I sleep every night convinced ‘All Izz Well’.