Advertisements

How to use Different Mutual Funds for different Financial Goals?

Can all your goals be tackled using mutual funds?

The answer is yes, in most cases.

But you need to understand that it is in my best interest to say this as an advisor, I also advise on Mutual Funds. But whether you believe me or not, the fact of the matter is that:

Mutual Funds can be used to save for most of your Financial Goals.

Why and how is what we discuss in this post.

(Here is an interesting comparison of Mutual Funds vs Real Estate investments)

You already know people can have different financial goals (ranging from common ones like children’s education, saving for retirement to super-rare ones like planning to buy a diamond ring for the spouse 😉 Here is a list of common financial goals that people have.

And you also know why I focus on goals so much here – because Goal-based Investing is the most practical approach to investing which increases the probability of your goal achievement.

And what else do you want to do with your money?

Achieve your real-life goals… right?

No point just generating high returns (and bragging about it) if you are eventually unable to achieve your financial goals. You cannot tell your son that you beat the market in past when you couldn’t even save enough for his education. Think about it. You cannot eat high returns.

So what are the factors that one should consider when chosing mutual funds for financial goals?

It depends on atleast the following 3 dimensions:

  • Time horizon of the goal
  • Importance / Criticality / Flexibility of the goal itself
  • Risk appetite (profile) of the investor himself

In a way, this means that like investors themselves (who have their own risk profiles), even the financial goals have their own risk profiles which are based on the type of goal, time horizon and risk profile of the investor himself!

These are the factors (atleast the major ones) which decide what asset allocation should be for these goals. And which in turn decides the types of mutual funds to invest in.

So let’s deep dive in these points.

Goal’s Time Horizon

Most people are fine with simple goal groupings like short-term, medium-term and long-term. But to make the goal’s risk assessment more precise, it’s better to have a few more divisions like:

  • Near Term (less than 3 years)
  • Short Term (3-5 years)
  • Medium Term (5-10 years)
  • Long Term (10-15 years)
  • Very Long Term (15+ years)

Within this, at times the goals are flexible and not-so-flexible.

For example – suppose your child is 5 years old. You have two financial goals for the child. First is his higher education and second is his marriage.

Now your child will begin his higher education around the age 17/18. So it’s a non-flexible goal and you have fixed 12-13 years to save for it if you begin today. You cannot wish that your child begins his higher education at 21 or 22. No matter what, it will start after his class 12th when he is aged 17/18.

On the other hand, goals like marriages are fairly flexible. Will he marry at 24, 25, 29 or 35? You don’t know. So there is some bit of flexibility as far as goal timelines are concerned.

So even within the spectrum of Near, Short, Medium, Long and Very-Long term you will have goals which are flexible and ones which aren’t, i.e. they are non-flexible goals.

Next step is to identify, how important or critical the goal is.

Goal Importance / Criticality

You already know that some goals are more important than others. Right?

Goals like Children’s Education, Retirement, etc. are More Important, whereas other ones like a vacation, even the child’s marriage are Less Important. Ofcourse its not exactly black and white when it comes to importance. What is important for you may not be important for someone else. But just understand that all goals aren’t alike and have different levels of importance.

If you remember we analyzed the whole process of How to choose Financial Goals (Super detailed Guide) – where we identified these goals as Needs, Wants, Desires, etc. or call it Discretionary goals and Non-negotiable goals.

Note – (FREE Download) Financial Goal Planning Excel Worksheet

Let’s say that on the scale of importance, you have 3 different segregations:

  • Critical + Non-negotiable
  • Very Important
  • Less Important

Now let’s use our understanding of the first two points about (i) Goal Timelines and (ii) Goal Importance to create the following grid:

Financial Goal Timelines

Now depending on where your goals are placed in the above grid, you will need to decide the asset allocation for the goal.

But aren’t we missing something?

Yes, we are.

And that is the Risk Profile of the Investor himself.

Investor Risk Profile

Again, there can be many categorizations, but for simplicity let’s say that the investor can be classified in one of the following 3 types:

  • Conservative
  • Balanced
  • Aggressive

Now our grid morphs into something like this:

Different Investor Risk Profile Portfolios

But why does it matter which type of investor a person is?

Ofcourse it matters!!

Let me give you a very simple example.

Suppose there are 3 friends who coincidently(!) have one daughter each aged 4 years old. Now, all of them want to save for their daughter’s higher education after 14 years, i.e. beginning at the age of 18. Their budget or call it goal cost (in today’s value) is Rs 25 lac each. And it goes without saying that the goal is very important for each of them – kind of a non-negotiable and critical goal.

But unlike the similar Goal Timelines (14 years) and Goal Costs (Rs 25 lac each) and Goal Criticality (Very Important & Non-negotiable), there is one thing which is not common among these three friends.

And that is their risk appetite.

First one is Conservative, the Second one is Balanced and the Third one is an Aggressive Investor.

So now if we go by the rule book, then the long term goals are best served via equity investing. It’s a proven fact and I have written about it countless times (read this recent simple example of why equity is best for long term investing and other mutual fund SIP success stories).

So that would mean a high equity exposure of 80-90% is good for this goal. Right?

But this is where investor’s own risk appetite comes into the picture.

A Conservative and Balanced investor will not be willing to invest 90% in equity. Only the Aggressive investor would be fine with such high equity exposure.

And that is why the Investor’s Own Risk Profile is also an important factor here.

Here is a ‘sample’ suggested asset allocation for various goal types (with respect to their timelines, importance and investor type).

Note (before you proceed) – These are just suggestions and not iron-clad definitions. It’s possible that due to the investor’s unique circumstances or requirements, the actual allocation may differ. And it must also be understood that this is a strategic allocation. It’s possible that due to market conditions, the actual starting allocation may be different. It is also possible that due to market dynamics, it may be advised by a smart advisor to tilt the portfolio slightly differently occasionally to benefit from tactical moves. And remember – Don’t blindly follow any asset allocation thumb rules like this one!

So have a look at the below grids:

Conservative Investor Asset Allocation

Balanced Investor Asset Allocation

Aggressive Investor Asset Allocation

I wish to repeat here that there is no perfect formula to decide the right asset allocation for the goals.

 

But generally speaking, it is wise to avoid equities for the shorter-term and also to embrace equity for the longer-term goals. The medium-term and intermediate goals can be dealt with using a balanced approach.

What would be the actual % of equity and debt (and even gold) depends on the investor’s unique profile and circumstances.

To give a small example here:

  • An Aggressive Investor saving for retirement (which is 20 years away) will be better suited for a 70:30 Equity Debt savings program
  • On the other hand, a Conservative Investor tackling the same retirement goal (which is also 20 years away) will not want to have more than 30-40% equity exposure most of the times. (It is possible that as his equity portfolio grows over the years and he becomes comfortable with high equity %, he might himself change from a conservative investor to a balanced or moderately aggressive investor).

So now, almost 1400+ words, we have understood why and how the right identification of the proper asset allocation can be made for each of the goals.

Now comes the question about how to use mutual funds, and which ones to choose to save for different financial goals.

The first step obviously is to decide the asset allocation for the goal. For that, you can consider the grids discussed above.

Next step is to pick the right ones to invest in mutual funds.

Without getting into the details of why I am suggesting these (and making this post really, really very long), here is what can be considered:

Conservative Investor

  • Near & Short Term Goals – Liquid Funds, Ultra Short Debt Funds (with conservative orientation)
  • Medium-Term Goals – Ultra Short Debt Funds (with conservative orientation) for debt part of the portfolio and Hybrid / Large Cap Funds for equity part
  • Long Term Goals – Ultra Short Debt Funds (with conservative orientation), Short Duration Funds, Money Market Funds etc. for debt and Large Cap Funds, Multi-Cap Funds for equity

Balanced Investor

  • Near Term Goals – Liquid Funds, Ultra Short Debt Funds (with conservative orientation)
  • Short Term Goals – Ultra Short Debt Funds (with conservative orientation) for debt and Aggressive/Balanced Hybrid Funds for equity
  • Medium-Term Goals – Ultra Short Debt Funds, Short Duration, Money Market Debt Funds for debt and Aggressive Hybrid Funds Large / Multi-Cap Funds for equity
  • Long Term Goals – Ultra Short / Short Duration / Medium Duration / Money Market / Dynamic Bond Funds (with a conservative orientation) for debt and Large Cap Funds, Multi-Cap Funds for equity

Aggressive Investor

  • Near Term Goals – Liquid Funds, Ultra Short Debt Funds
  • Short Term Goals – Ultra Short Debt Funds (with conservative orientation) for debt and Aggressive/Balanced Hybrid / Dynamic AA Funds for equity
  • Medium-Term Goals – Ultra Short Debt Funds, Money Market / Dynamic / Short Duration Funds for debt and Aggressive Hybrid Funds or Large / Multi-Cap Funds for equity
  • Long Term Goals – Ultra Short / Short Duration / Medium Duration / Money Market / Dynamic Bond Funds for debt and Large Cap Funds, Multi-Cap, Mid & Small-Cap Funds for equity

Before you tell me what is right and wrong in the above, please understand that this is just a broad generalization. The actual fund choice may differ from the above ones to some extent due to various factors. Also, some other fund categories might be suitable for certain clients based on their unique needs.

My suggestion is to also read what these mutual fund categories mean?

And here is something more to note about goal timelines.

As years pass, you need to ensure that the asset allocation of the goal portfolio still remains relevant from the perspective of remaining time for the goal.

What does it mean?

A long term goal will eventually become a medium-term goal and then a short term goal.

Right?

For example – Let’s say you start with a goal of your son’s education after 16 years. And being an aggressive investor, you start with only equity funds. After 4-5 years of equity accumulation and when about 12 years are left, you begin to rebalancing your goal portfolio periodically. Now, when only a few years like 4-5 years are left for the goal, the goal no longer remains a long term goal or a medium-term goal. It becomes a short term goal. Right? So you should start reducing equity gradually or tactically (if the advisor advises) over the next few years.

I know when it comes to saving, you simply wish to find out the best mutual fund SIPs for all your different financial goals. And who wouldn’t? But as you might have understood by now, unless and until you find out what a good asset allocation for your goals is, you will not be picking the right fund category (leave alone the specific schemes).

Remember, more important than trying to pick the best mutual fund scheme is to find the appropriate asset allocation for your goal-specific savings first; and then finding out the right fund category. Only then you should try to find out which scheme is to be picked from several available.

Hope you found this article useful.

Additional Suggested Readings:

Advertisements

Mutual Fund Vs. Portfolio Management Service (PMS) – Suitable for Whom?

Till very recently, there was a steadily growing interest among small investors about PMS. In fact, the number of queries on lines of ‘Is PMS better than mutual funds?’ saw a constant rise in the last few years.

And why not?

After all, the Portfolio Management Service or PMS had long been perceived as some sort of exotic investment product, which offered high returns to sophisticated investors.

Right?

But after the recent (and I am afraid ongoing) stock market carnage, especially in the non-large cap space where most of these PMS schemes operate in, the PMS investors have experienced the obvious-but-often-forgotten downside of high-risk taking.

No… I am not pointing any fingers on any PMS fund managers here.

PMS schemes, by design, are high-risk products which are focused on enhancing returns for investors by taking (and not surprisingly) very high concentrated risks at times. Sometimes this works and the results are phenomenal (If you search for the returns delivered by best portfolio management services in India in good years, you will understand how much). But at other times, it doesn’t and the results are horrible.

PMS is an equity product and falls on the higher end of the risk spectrum. And due to its concentrated portfolio and the high inherent risk, it is best suited for investors with prior market knowledge and understanding.

But small investors are small investors for a reason. 😉 Lured by the eye-popping claims* of high returns made by the PMS funds in India, many small less experienced and gullible investors got attracted to PMS funds in recent times. Unfortunately, they focused just on the returns and not on the risks.

It was exactly like trying to cover a 500-km journey fast by driving at 150+ kmph. You may reach the destination in 3.5 hours. But at such high speeds, there is an obvious risk of life-ending accidents.

Same is the case with PMS. High speed (returns) come with high risk-taking. Plain and simple.

* Not all PMS do well as it seems to outsiders. Many can’t even beat simple well-diversified equity funds.

That said, I am a strong believer that equity can create enormous wealth for people in the long run. But that doesn’t mean that anyone and everyone should be fully invested in equity. Different people have different goals and their portfolios should be constructed accordingly. Even within the equity space, the exposure to different types of shares comes with different levels of risks. And people forget this.

At the cost of sounding repetitive, I would say that when it comes to equity, most Indian investors are better suited for the Mutual Funds. In the choice of PMS vs Mutual Funds, it can be said that PMS is best left for people who actually understand the consequences of high-risk strategies and have decently large portfolios (of which a small part can be parked in high-risk strategies like PMS).

That brings us to the differences between PMS and Mutual Fund.

You already know what a mutual fund is and what are the different categories of mutual funds and what are the various types of mutual funds. So I won’t address that aspect.

Let’s instead see what a PMS exactly is and then we will discuss what suits whom.

Portfolio Management Service or PMS is an investment vehicle that replicates investment strategies made available by the PMS fund manager in the client’s portfolios.

There is a perception that PMS offers a great degree of customization. And this is considered by many as one of the key benefits of Portfolio Management Services apart from the perception of a high-return-promise. But this isn’t the case for every PMS or for every PMS investor. Most PMS offer standardized model portfolios for smaller clients. Once a client is on-boarded, the manager will try to replicate the client portfolio to as close to the model portfolio as possible. But the real customization is available only to the large clients – who can invest atleast a few crores in the PMS. If the client account size is big enough, the PMS manager will give proportionately large attention to the creation of a customized portfolio (broadly in line with PMS model portfolio or strategy if need be) to cater to the client needs. Remember, Such levels of customization is not available for smaller PMS clients.

What else?

Unlike mutual funds which are tightly regulated by SEBI and to some extent AMFI, the PMS is very less regulated and hence, allows fund managers to take a lot of risks. This can also be seen as extra flexibility available to PMS managers. But this no doubt increases the risk too as the fund manager has a free hand.

So for less experienced clients, such a level of risk-taking isn’t even required.

Note – And if you do check portfolio management services SEBI circulars and compare it with those of mutual funds, you will also realize that PMS managers are less answerable than MF AMCs.

Since the risks are high in PMS, the regulator has set a minimum investment limit of Rs 25 lakh in PMS to keep it out of reach of very small investors. Whereas in Mutual funds, you already know that you can even start with Rs 1000 per month SIP.

The most important thing apart from the highly risky nature of the product itself is the high fee that PMS charges. In MFs, you pay about 1-2% on the amount as expenses. In PMS, the fee has 3 distinct components:

  • Upfront setup fee paid during the initial investment
  • Fixed ongoing Management fee (annual fee)
  • Performance fees – generally as a share in profits generated

The basic fixed (on-going annual) fee is 2-2.5% per annum. But depending on the size of individual accounts, the on-going fee or performance fee is based on mutual agreement. So for example, someone investing the minimum Rs 25 lakh in a PMS may have to pay a 2.5% recurring annual fee whereas a Rs 5 crore investor in the same PMS strategy may be paying a lower fee (1-1.5%) as he brought in more money to the table.

Apart from the annual fixed fee (and unlike in MFs), PMS also has performance-linked fees (called profit share). This applies when the gains cross a predetermined level.

For example, a PMS can have multiple offerings like:

  • 50% annual fee + performance fee of 10% of the gains above 15%
  • 50% annual fee + performance fee of 15% of the gains above 12%
  • 25% annual fee + performance fee of 20% of the gains above 10%

This fixed fee + performance fee structure makes PMS cost higher and it eventually eats into the portfolio returns if the returns aren’t being delivered. And given the high risk that comes associated with PMS investments (and for those who aren’t very aggressive), mutual funds are more prudent investment option in equity and far cheaper. Remember, the investor can negotiate the fee with PMS providers depending on how much money he is investing with them.

But think about it – PMS which were earlier considered a product for the rich and the sophisticated, are now being pushed by agents, distributors and banks much more aggressively to everyone capable of sparing Rs 25 lac!

Why is it?

I will tell you.

SEBI, the regulator has been steadily curbing the commissions on the sale of mutual funds. So the distributors get attracted to the relatively high upfront commissions given to them by PMS operators. So the distributors, in order to protect their income are hard-selling clients to opt for these high-upfront-commission PMS schemes in spite of knowing that they might be unsuitable for them.

Now you know why its gaining popularity 😉

Is PMS for you?

I will put this very plainly here.

Based on the little experience I have and things I understand (or atleast feel that I understand…), most people are better off not investing in PMS. When it comes to equity investing, most people are best served by investing in mutual funds alone.

In any case, the entry limit of Rs 25 lac is high enough for very small investors.

But just because you have Rs 25 lac to invest in equity doesn’t mean that you are suited to invest in PMS. Just because you can doesn’t mean you should.

PMS is suitable for high net worth (affluent) and institutional investors with a suitably large investment portfolio. There is no perfect threshold figure here but let’s say that unless you have a few crores to invest, you shouldn’t even think about PMS. 

And since the product is high-risk, its best to keep exposure limited to a small percentage of the overall portfolio if you eventually do invest in it.

So for example – Let’s say your overall portfolio is Rs 10 Cr. Now based on some goal-based analysis, it is found that your asset allocation should be 50:50 equity debt. So that means Rs 5 Cr for equity and the other Rs 5 Cr for debt. Now out of the Rs 5 Cr for equity, it’s best to limit the PMS exposure to 10-20% here for most large and aggressive investors too.

Why?

Because just because you are investing in equity doesn’t mean that you go straight full to the highest risk component. You divide the equity corpus between various levels of risk. Right? That’s how a prudent portfolio is built.

It is also suited for more sophisticated clients having large portfolios who wish to invest in themes that aren’t easily available through mutual fund portfolios. In such cases, the PMS manager can create tailor-made solutions for larger clients.

Sorry for this long rant.

If you have had enough of this Mutual Fund vs PMS debate, and wish to go away with just a few things from this article, then here they are:

  • PMS is a high-risk equity product which is suitable for sophisticated investors who know what high-risk concentrated equity portfolio investing really is.
  • PMS is not suitable for small investors.
  • Just because you have Rs 25 lac (minimum required) to invest doesn’t mean that you are suitable to be a PMS investor
  • If your agent, bank is pushing you to buy it then remember that he gets good commission and may not be advising you as per your needs or product suitability.
  • For most of you, it’s better to stick with Goal-based Investing and take the route of Mutual Fund investing.

Now don’t ask me if PMS is better than mutual funds or which is mutual funds or PMS? You already know what I think after having read till here.

Mutual Funds Investment Tips for Millennials

When it comes to investments, the word ‘Tips’ is an overused and an over abused one. But in this post, I try to distil down some thoughts (or call them tips if you prefer 😉 ) for the young investors of mutual funds.

And why do I want to offer these tips for mutual funds investors and that too who are the young Millennials?

Because in recent past and thanks to aggressive campaigns by mutual fund houses and regulators and ofcourse those selling mutual funds, there has been a rise in interest in these investment vehicles. And unfortunately, many agents, distributors (who wrongly call themselves advisors), bank relationship managers and those giving free financial advice end up overpromising and overcommitting what these mutual fund investments can do and cannot do.

So this list of tips is a sort of what’s right and what isn’t and what you as a mutual fund investor should know of:

So here we go:

  • First a bit of common advice – irrespective of whether you want to go for mutual fund investment or some other investment, always invest with a goal in mind. Aligning your investments to goals helps you stay on track, be in control and clearly understand how much you have saved up for each of your financial goals. This is the extremely helpful concept of Goal-based Investing that is intuitive and gaining a lot of interest these days.
  • Those who invest randomly here and there and for stupid reasons like ‘just to save tax’ are doing themselves a disservice by not managing their money properly.
  • Mutual funds allow you to invest in various assets like equity, debt and gold. So there are several types of mutual funds and hundreds/thousands of individual schemes. Atleast when it comes to equity mutual funds, it is best to have a long term view. Because equity as an asset class is best suited for long term investment. It may give good returns in the short term as well. But due to the very nature of equity and how the short term returns can fluctuate, you should be willing to stick around for long enough to get good average returns.
  • And being a millennial, you have decades in front of you. Right? So you need to and actually can think about the really long term.
  • Now, how many equity funds should you be investing in? For starters when you can only spare a small amount for investing in mutual funds, you can start with just 1 or 2 funds. As your income increases and so does your investment capability, you can add more funds to your mutual fund portfolio. It is said that 4-5 funds are good enough and provide proper diversification. Anything more (atleast for a not-so-large portfolio) wouldn’t help much – neither from a diversification perspective nor returns perspective.
  • Which mutual funds to choose? The answer ideally will depend on the kind of investor you really are from amongst – super defensive, conservative, balanced, moderately aggressive, super aggressive. Assuming you are somewhere in the middle, i.e. in the balanced category – If you are investing for the near term (less than 3 years), do not invest in equity funds. Go for debt funds. If you are investing for short term (3-5 years), it is still advisable to have a major chunk in debt funds and just a small part in equity funds. For medium-term horizon like 5 to 10 years, you can have equal amounts of equity and debt (or can even have slightly higher equity part). And for really long term goals like those which are 10+ years away, best to have a major part invested in equity funds and a small part in debt funds.
  • Now comes to the task of choosing the actual funds in equity and debt funds space. Please for heaven’s sake do not randomly pick funds or rely blindly on the advice of your colleagues or friends. To put it simply, stick with funds have done well not just in last 1-2 years but have performed well consistently over the long term. Ideally, the fund should have proven its mettle across the cycle and be amongst atleast the top 25% of its category for the last several years. Do not blindly invest in last year’s table toppers. It generally doesn’t work and the past winners cannot guarantee a win next year or years thereafter. You should also check other factors like rolling returns, risk ratios, expense ratios, fund manager’s ability to deliver on what is being promised, comparative performance in peer-group and category and with respect to the chosen benchmarks. You may also check star ratings but again, do not trust mutual fund star ratings blindly. I know all this may sound complicated if you are just starting. But this is the right way to do it. And if you feel you need help, its best to consult an investment advisor.
  • Should you wait to invest when markets are falling so that you can get mutual fund units at a lower price? Ideally, that is a perfect way. But the problem with this approach is that you never know when markets will fall and this wait may be of years. So you will miss out the returns of rising markets in the years in between. Therefore if you are investing for long term goals in equity funds, it is best to do regular investing via SIPs. A small amount invested periodically can create a lot of wealth in the long run. There are many SIP success stories to take inspiration from.
  • Most investors of equity funds start small. Like they start with a SIP of Rs 1000 or SIP of Rs 5000. But over the years, the income also increases. So you should always try to increase your regular investment in mutual funds at least at a rate equal to your income hikes. So let’s say you start with Rs 5000 per month in the first year. In next year or so, you should aim to increase it to Rs 6000 monthly or more and Rs 7-8000 in the next year.
  • After you have begun investing and you have begun to accumulate a small corpus, you should become serious about monitoring your MF investments as well. You should keep track of how well your investments are performing. But it is not required to be done very frequently. Reviewing your investments once in a while (like once a year) is all that is required. This way, you can remove non-performing funds and replace them with ones which have better potential to deliver your expected results.
  • A lot of people are under the myth that you cannot lose money if you invest in mutual funds through SIPs. This is not true. SIP simply averages out your investment across time. Many also feel that simply running a SIP is not the perfect strategy for investing. I don’t deny that as aiming to perfectly time the market entries and exit is what is supposedly glamorous and ofcourse profitable. But realistically speaking, most people are not good timers (leave alone perfect). So their best bet is to take the systematic route of SIP investing in mutual funds which has a good probability of delivering decent and acceptable returns.

That is enough for this post. 🙂

But if you still have doubts about whether you should even be investing in mutual funds or not, let me remind you that unlike previous generations which had some level of social security via pension, etc. to take care of them later in life, us millennials have none.

We are on our own. It is our responsibility to ensure that we save and invest properly for all our goals.

So think about it.

SIP Vs Lump sum – Which is better in Mutual Funds Investing?

I don’t like such questions.

Is it better to invest lump sum or monthly SIP in mutual funds?

A lot of people ask me such questions – whether SIP (Systematic Investment Plan) is better than lump sum investing in mutual funds in India? Or whether lumpsum investing is better than mutual fund SIP?

Why I don’t like these questions (are SIPs better than lumpsum investments?) is because as usual, there is no one right answer here.

There are shades of grey and it isn’t exactly an ideal comparison.

People want to simply compare SIP vs one time investment in mutual funds or just want to find out which are top mutual funds for SIP in 2019 or best mutual funds for lump sum investment in 2019 and what not. But there are no perfect answers or ready lists that predict anything.

And let’s look at it from a common-sense perspective.

Before even getting into lump sum vs monthly investment debate, the decision to invest in lump sum or SIP depends on whether one actually has enough investible surplus that can be called as lumpsum!

Right?

If one doesn’t even have this ‘lump sum’ then this question of SIP or lump sum in itself is meaningless. It’s only when this ‘lumpsum’ is actually available that the question holds any relevance.

And once the lump sum is there, the next question should be whether investing in one go is better or whether it’s wiser to spread that lump sum over a short period of time, as there can be several best ways to invest a large sum of money in mutual funds. Just because the lump sum is available doesn’t mean that the money should be invested in one go. There are can various other tactics to deploy it more efficiently.

But nevertheless, there are those who prefer SIP (and have SIP success stories to tell) and there are those who prefer lump sum investing.

And to be honest, both methods work in different set of circumstances.

Let’s try to do this comparison as objectively as possible.

SIP vs Lumpsum in Rising (Bull) Markets

In a rising market, your lumpsum investments in mutual funds will produce higher returns than SIPs. That’s because the cost of purchase in a lumpsum investment in a rising market would always be lower than the average cost of purchase in SIP, which is spread out across higher and higher purchase prices for each SIP installment.

Let’s take a very simple hypothetical example to show this.

Suppose one investor invests Rs 5000 per month in a rising market for 12 months. While the other invests Rs 60,000 as lumpsum at the start itself. Both invest in mutual funds a total of Rs 60,000. Here is how it pans out over the next 12 months:

As can be seen above, the average cost (average NAV) for the SIP investor in a rising market is higher. And hence, the future hypothetical profit when sold later, will be lower for the SIP than that of the lumpsum investor.

Now let’s look at a falling market scenario.

SIP vs Lumpsum in Falling (Bear) Markets

In a falling market, the SIP investing would result in comparatively lower losses than that in lump sum. And that is because the cost of purchase in a lumpsum investment in a falling market would always be higher than the average cost of purchase in SIP.

Here is how it looks:

As can be seen, the average cost for the SIP investor in a falling market is lower. And hence, the future hypothetical profit when sold later, will be higher for the SIP investor than it is for the lumpsum investor.

So basically what is happening is that if the market grows continuously, then lump sum investing gives higher returns whereas if it falls continuously, then SIP investing is better (lesser losses than that of lumpsum investing in such scenario).

Ofcourse in practice, the markets neither go up nor go down continuously for very long. So the actual reality may be somewhere in between the two above discussed scenarios of sip vs one time investment in mutual funds.

In some cases, SIP may give better returns than lumpsum investing. While in other cases, lumpsum will give better return than SIP investing. And in many other cases, the result of both will be pretty similar.

It all depends on the future sequence of returns that the investor gets. If you want to know how much wealth your SIP will create, try using this SIP maturity value calculator.

But let me circle back to the original point I made – whether you invest lumpsum or otherwise first depends on whether you have a lumpsum or not.

Right?

And if you have, then obviously it would be wiser to just invest lumpsum when the market is low. Remember Buy-low-sell-high?

But problem is that you will never know when the market is really low. You can be wrong about your assessment and enter at precisely wrong times.

And that said, what about our ‘real’ nature and how we behave?

Most investors are unable to use common sense when their portfolios are down.

We know that the best returns come after markets have crashed.

But very few people have the guts to go out and invest more money (assuming they have more). Fear plays a major role in investing and unfortunately, you can neither back-test emotions nor fear. And you will only know in hindsight whether is it best time to invest in mutual funds or not.

Imagine investing lumpsum in December 2007 when markets were peaking and then helplessly witnessing the fall down till March 2009. On the other hand, if you invested a lump sum in March 2009 instead (at the bottom), you would have been called the next Warren Buffett!

Both are extreme examples but show how lumpsum investors potentially expose their portfolios to the vagaries of the market. There is always the risk of being completely wrong and mistiming. And that is the problem. To be fair, one can also get the timing right and if willing to spend sleepless nights in the short term, can go on to make much higher returns than usual in medium to longer term. But that’s how the dynamics of lumpsum investments are.

Due to their structural nature, SIPs reduce this risk of being completely wrong as the investments are spread out. So asking whether is this the right time to invest in SIP is immaterial as SIP spreads out your investments. Ofcourse your returns will depend on how the markets play out during the spreading-out period. But that is how it is.

For small investors, SIP is also suitable from their cashflow perspective. They rarely have access to large lumpsum that is ‘surplus enough’ to be available for long term investing.

By putting away small amounts periodically, there isn’t a large pressure on their resources and no doubt is convenient. This is the reason that for small investors, SIP is their best bet even if not a perfect strategy.

Remember that SIP is a tool to optimize returns and match your investment needs to your cashflows. It is not a magician’s magic to generate superior returns to lumpsum investing. Read that again.

And it is for this reason that SIP is better suited when investing for long term goals like retirement planning, children’s future planning, etc.

One can use the SIP investing to slowly build up a large corpus over the years without straining the finances in present or worrying about timing the markets perfectly. You can try to use this sort of yearly SIP calculator to understand how much money you need to save for various financial goals.

I know that many of you are more focused on saving taxes.

And one popular way to save taxes these days is to go for best tax saving ELSS funds vs PPF. But there also, people tend to get confused whether to go for SIP or lump sum for ELSS when investing in top ELSS mutual funds. Nevertheless, the logic that we have been discussing till now remains the same irrespective of whether it’s an ELSS fund or a normal mutual fund.

Now let’s take a step further…

What if you have a lump sum that can be invested. Should you go ahead and invest it in one go or do something else?

Should you Invest Lump Sum In One Shot Or Systematically & Gradually?

A smart investor would recognize the market bottoming out and invest in one go. But we all aren’t smart. So if you aren’t sure if it’s the right time to invest in one go, you can even deploy your lump sum gradually.

There is no one single answer to which is the best method to invest a lump sum in mutual funds?

So depending on the market conditions, investor’s investment horizon and risk (and volatility) appetite, a deployment strategy may have to be worked out. This strategy may either aim for lowering risk or maximizing returns or a combination of the two.

One way is to put lump sum investment in debt mutual fund and gradually deploy the money using STP or Systematic Transfer Plan into an equity fund.

Different investor needs would demand different lumpsum deployment strategies.

Also, it’s important to invest in the right funds and build a solid mutual fund portfolio.

Even after the recent SEBI’s mutual fund cleanup exercise, there are still several categories and hundreds of funds out there.

Being a small investor, it can be daunting to find out which are the best SIP plans that can be considered for long term investments. Or for that matter to find out which are the best mutual funds for lumpsum investment or the best tax saving mutual funds in India or whether to do ELSS SIP or lump sum.

If you don’t know how to find good funds or need help with planning your investments, do get in touch with a capable advisor to help you. It is worth it.

Finally…

I am sorry if you did not find the one specific answer to your question of SIP or Lumpsum which is better for investing.

A direct comparison between SIP and lumpsum investing is neither fair nor accurately possible. And unless we know everything about the investor in question, one cannot say confidently which is better suited for whom.

You may feel that there is a secret to find the best time to invest in mutual funds India but there is no secret. Different investors need to follow different investment strategies for SIP and lump sum investing. And ofcourse an awareness of market conditions and how market history plays out is absolutely necessary. You can’t be blind to that.

All said and done, SIP is a comparatively safer option but we cannot deny that at times, lump sum investing will provide better returns if done correctly.

Which is better SIP or lump sum investment in top best mutual funds in 2019?

This may sound repetitive but the truth is the superiority of SIP over lump sum or of lumpsum investments over SIP varies under different conditions.

Is SIP better than one time investment? Or lump sum is better than SIP? Systematic Investment Plan vs Lump sum Investment? It is all a matter of probability and what is the sequence of returns that comes in future and how investor behaves during the period in consideration. That’s all there is to it.

SIP may not be perfect; but it’s Small Investor’s Best Bet

If you are a mutual fund SIP investor, you would already have been bombarded with thousands of articles about why mutual funds and more particularly mutual fund SIPs are great.

And that is true.

But I wanted to re-highlight this fact in a different light.

SIP is not perfect like the theoretical (but attractive) concept of Buying-Low-Selling-High. But still, it works best for small investors and is their best bet when it comes to equity investing.

I recently wrote an article for MoneyControl on this topic. If you wish to understand why SIP isn’t Perfect but still the small investor’s best bet, then please do read the article by clicking the link below:

[Click to read] – SIP isn’t Perfect; but it’s the Small Investor’s Best Bet

Hope you find the article useful.

Picking a Fund with 15% p.a. in 10 years Or a fund with 25% p.a. in 3 years?

That’s an interesting problem.

Neither 15% nor 25% can be called as bad returns. After all, risk free rates are at 8% or even less. But ofcourse, we are greedy and we prefer higher returns. Isn’t it?

I recently wrote an article for MoneyControl titled:

‘Which fund should you choose: A 15% annual return for 10 years or 25% annual return for 3 years?’

Here is a short snippet of the article…

_________________

To be fair, both 15% and 25% average annual returns are pretty decent.

And let’s accept that the former is more achievable than the latter in the long run. At least for those who know their fund managers aren’t Warren Buffett.

But jokes apart…

_________________

You can read the rest of the article by clicking the link below:

[Click to read] – Pick an MF with 15% p.a. in 10 years Vs an MF with 25% p.a in 3 years

Hope you find the article useful.


Interview With Mid-Cap Mogul Kenneth Andrade

Kenneth Andrade Interview Midcap
Image Source: Livemint

 

I recently had the privilege of talking to Kenneth Andrade, who is widely acknowledged as one of the best fund managers in the mid-cap space in India.

Most people already know this legend and many refer to him as the ‘Mid-Cap Mogul’. Hence, an introduction is not necessary in Kenneth’s case. But for those who don’t know, he was the fund manager of IDFC Premier Equity Fund – one of the most popular and best performing mid-cap funds ever.

Ability to think out-of-the-box to identify the big theme, build investment hypothesis around it and most importantly, convert it into winning investments. This was and is his expertise. Now he has moved on from IDFC MF and turned into a private investor.

In this interview, he answers my questions about investor psychology, investing in stocks for the long term and mutual fund investing.

So here it is…

Common Investor Psychology

Dev: One of the biggest problems of common investors is their inability to sit. So how does an investor stay put even if (say) markets have moved from 10,000 to 20,000 in just a couple of years and he/she wants to book profits?

Kenneth: Investors do stay put in investments; except in equities. This probably is associated with the volatility of the asset class and the lack of a fixed return or physical asset.

Also no one likes negative returns and the equity asset class can’t promise that every year.

The western world has found a way around this with their pension plans. India still needs to get there. As a discretionary investor they will always give into greed at the top of the markets and fear at the bottom of the cycle. Hence the only way out is to package products, which eliminate or smoothen out volatility. Manufacturers in India have been experimenting with hybrids. They tend to cushion the volatility of the markets. Maybe that’s one way to keep the investor interested. It may not be the most efficient way of equity investing but the yields across market cycles would still be higher than mere fixed income products.

 

Dev: It is said that in investing, it’s very important to avoid making big mistakes. Even someone like Charlie Munger believes, that not making big mistakes is a huge determinant of whether one will have financial success in life or not.

How does a common investor identify his limitations, create a simple mental framework and more importantly, implement this framework to avoid making big mistakes?

Kenneth: The way I would address this is to invest in what you know. I am very apprehensive in putting money to work either in a company or an investment, which I don’t understand. I guess the same would apply to any investor.

One way of avoiding mistakes is to understand what you do, that way you can identify and correct it when and if it does go wrong. If you don’t know the investment, you would never know if things are going wrong in the first place.

 

Dev: What according to you is the biggest reason most investors don’t succeed in stock markets?

Kenneth: I guess most serious investors do succeed in markets. The longer you stay invested, the better are the results. Investing needs to be passive and rather than focus on prices investors should concentrate on the underlying. This is a learning process. And being persistent is the key to long-term success. A lot of investors give up in the short term.

 

Dev: How important it is for investors to have reasonable expectations? Many investors start believing that markets will continue to perform well, just because they have done so in the past. How does one correct this perception?

Kenneth: In the beginning of 2013, 10-year index returns converged with liquid fund returns. There is no set rule that equity or any asset class will deliver an above average return in perpetuity. Sure if you play with statistics, we can prove otherwise.

In the long term, any manager or fund with a return over 5%-7% (post tax) over the risk free return is a job well done. If that is the benchmark, then it is fairly important to anchor investor expectation around this number. Of course at times this could be significantly higher if a couple of asset classes do extremely well.

 

Dev: Volatility is one of the most recognizable and hated aspects of equity markets. And because of volatility, most investors do the exact opposite of what needs to be done. They buy (on fear of missing out) when markets are high and sell (out of fear), when its low. This seems to be driven primarily by the perception of volatility and risk being same things.

But that is not correct as per my understanding. So how does one start believing and also, convince others about the fact that volatility is an aspect of risk and it is not 100% same as risk.

Kenneth: I guess the latter part of the question can only be experienced with time in the market. In one of my presentations lately I made a point that you need to use volatility to your advantage. Markets overshoot in both directions, and if you take advantage of this it could be extremely profitable. But one needs discipline to take advantage of these extremities.

Mutual Funds

Dev: The best time to invest was yesterday. Next best is today. Though its easier said than done for most people (who invest for long term goals), how does one go about convincing people to stick with to long term mindset when it comes to investing?

Kenneth: It’s the discipline that’s very important for that. And more than convincing, it’s the investor experience in the product category that matters. If any consumer has had a good experience of a product or a service, chances are he will stick to that regime. So it’s important that a habit is cultivated.

A lot of investors like to see markets trend up so that their money is multiplied everyday. Logically if I had a steady income – I rather want to invest in a market that is sideways to down for even maybe 5-7 years. (Read I Pray for Bear Markets) That keeps my average holding of my investments low. Then if markets doubles or trends upwards, which they normally do once in 5 years, it’s a very profitable trade.

If you do the math investing in a market, which is trending upwards is very inefficient. You have a very high weighted average cost of holding and a relatively lower return than the former.

 

Dev: It is said that apart from returns, one should also consider many other factors while selecting a mutual fund for investing. Which factors according to you should form the key criterias for fund selection?

Kenneth: Investing in any portfolio should be a long-term commitment. Likewise the long term is also associated with durability. So if one needs to buy a MF scheme for the long term, the portfolio also needs to be in sync. There are a lot of funds out there, which promise long-term returns with the top stock undergoing tumultuous changes. Portfolio churn is never good for the long-term investor. If this were so with the underlying fund, at most the best return would be index linked. One needs to watch for this.

Stocks

Dev: Inspite of MFs being the best option for common investors*, people do get attracted by the glamor of investing directly in stocks. As per my understanding, this is human nature and people will continue to do so.

But when they do it, it also makes sense to invest only in companies, which dominate their industries with no-to-moderate debts and positive cash flows (atleast for non-professional investors, these criterias should be good starting filters).

How can an investor go about finding such companies? Another problem with finding such stocks are the perennially high valuations, which they are assigned. How does one go about investing in such companies?

* neither has the time nor expertise to analyse individual stocks.

Kenneth: MFs reduce volatility and at the same time offer participation in the growth of the capital markets. Their models are largely disciplined with managers allocating money across a number of companies. Individuals can replicate this off course by buying stocks directly. The error that most investors commit is the discipline of diversification. If this were managed well the outcomes would not be very different from diversified mutual funds.

The second part of your question resonates around investment styles. And no one style fits all. But by sticking to what you understand best will give you more upsides than downs. Don’t diversify your style.

As an investor I have always shied way from levered companies (excessive debt). And I consistently look for stocks and business that are out of favour. That way you know you are getting in at the ground floor.

An example of an ideal investment case would be a loss making company with a shrinking balance sheet in an industry that is under stress. So go one step backward on what creates capital efficiency – higher profits and capital employed (RoE = Net Profit/ Shareholder Capital). The former is the function of the environment; the latter is the function of the management. Look out for the latter, this should not be bloating. Chances are these stocks will come extremely cheap because of the cycle they are in.

As investors we all consistently focused on return. On the contrary we should be risk managers. A bull market gives you the return because all stocks participate; a manager has a very little role in that. It is the downside that counts.

You have to have a framework that works in a market offering you negative returns and measure your successes by buying companies that survive an economic slide.

 

Dev: In one of your interviews, you said that it is very important to go for companies, which are in a space that is scalable and significant. But as Graham said in Intelligent Investor, “obvious prospects for physical growth in a business, do not translate into obvious profits for investors.”

How does one think on those lines, so as to avoid the pitfalls of investing in the wrong company in the right space? Is it that the predictability of understanding the environment that a company operates in, and the ability of the company’s management to actually execute in that environment is the most critical aspect of decision making?

If yes, how does one be sure about the management here?

Kenneth: A company profit is limited by the size of its industry. Hence my fetish for scale sets in. Off course once this scale is established, the execution has to be profitable market share growth.

In my framework any company that loses market share raises a red flag, the cost of building back market share gains is ridiculously expensive. It is an easy parameter for most investors to track. (This framework may not strictly apply to commoditized business, but it works in most cases).

Getting back to the scale question, I love excesses. I always am on the look out for the next stock market bubble and the reasons that would cause it, but I would rather preempt them. Else like every one else I end up being the follower. If this is the context, I would necessary need to find scalability in the business and in the mid term markets extrapolate these numbers creating these excesses.

 

Dev: Most people say that India will continue to grow for years to come. As investors we need to be optimistic about future prospects. But as I read in one of your interviews, you said that it is very important not to go into an expanding economy with the wrong portfolio.

Most people are looking at the same set of sectors, which have done, well in recent past. But to outperform over the long term, one needs to know what can drive the next bull market. Though its tough for common investors to do it, what would you advise a person who is willing to put in place a mental-framework to think on those lines?

Kenneth: That’s an easy one. Demand creates profitability, which creates market caps which in-turn creates the need for fresh capacity. So in this framework, companies, which were growing 15%-20% per annum, set up capacities to grow between 30%-50% using near term historical numbers to justify the capital investment. This creates excessive capacities. Which is why the same sectors get very capital intensive and never return to historic levels of capital efficiency and then valuations.

If the above is true, we would need to let go of the past and look at industries where supply constraints or competitive intensity is low. Chances are they hold on to their profits and efficient capital allocation. One way of tracking this is leverage. Banks usually are arbitragers of high capital efficient business and low interest rates. They usually fund excessive creation of capacity based again of near term historical numbers, which they extrapolate into the future. So look for what these institutions fund, it may be the beginning of the next economic bubble; and excessive lending may end up being the end of one.

 

Dev: I know that you like buying companies, which are efficient with their use of capital. How can one analyse companies to find efficient use of capital. And more importantly, how does one create a list of such (prospective) companies in the first place?

Kenneth: Go one step behind. In one of the question above I alluded to two components of the capital efficiency ratio – the numerator and the denominator (ROE = PAT/ Shareholder Capital; ROCE = PBIT/ Capital Employed). The numerator is profitability, which largely is the function of the economy; I don’t believe I can predict a complex subject of growth.

The denominator however is the function of the management and efficient capital allocation. A lower denominator is all I look for and you don’t need a model to predict that. This is already in public domain. Just look for the latter. If you buy a portfolio of 20 companies that meet this criterion, the probability of going wrong is well zero!

 

Others

Dev: Few books which you would ask everyone to read, to get their thoughts about investing and money ‘corrected’ and streamlined.

And what will you suggest for someone who is interested in doing deeper analysis of the actual businesses behind the stocks?

Kenneth: I have always identified with the Peter Lynch style of investing, which is what makes his two books my all time favourites. i.e. 1) One Up on Wall Street and 2) Beating the Street

And nothing beats company annual reports if you want to deep dive into an analysis of a company.

 

Dev: How do you avoid noise and information overload, which are so prevalent these days? How does an investor focus just on what is important?

I feel that noise is generally made up of opinions people have. And I may be wrong, but most people don’t know what they are talking about when discussing about future. How does one stop oneself from becoming influenced by such noises?

Kenneth: As an investor I am always looking at a right price to buy a good business at. So noise is welcome if it gets me to that objective. Else, file all the information you get in some remote corner of your grey cells. Chances are you will need this sometime in your investing journey.

 

Dev: That’s all from my side Kenneth Sir. I thank you for taking time out of your busy schedule to answer my questions. It was wonderful to have you share your insights.

Kenneth: Thanks Dev.



Mutual Funds Vs ETFs in India – Which one to choose Today, And Which one in Future?

Note – This is a guest post by Girish Sidana, a reader and an accomplished professional working for a well-known name in Indian automobile industry. You can connect with him professional here.
 
So over to Girish… 
 
Most people reading Stable Investor would be fully convinced (even I am) that investing in well diversified Mutual Funds for a reasonably long period fetches the best possible returns. But what if I tell you that this may not remain true in future?
Yes. It may sound surprising.
 
But before I go into the details and tell you the reason for the above statement, let me try and explain the concept of another product, which is bound to play a big role in future. I am talking about Exchange Traded Funds or ETFs.
 
 
What are ETFs?
 
An ETF is very similar to mutual funds (MF) in a way, that it is also a fund of various stocks. It helps investors diversify their investment portfolio. But unlike actively managed mutual funds which charge around 2% as fund management fees, ETFs comes at a very low cost of about 0.5%
 
So how are ETFs able to charge so less?
 
Its because ETFs are not actively managed by fund managers. Rather these mimic the composition and returns provided by various indices. So you can invest in Nifty ETF which will track Nifty and will give returns commensurate to Nifty.
 
ETFs are also traded live on the exchanges. This is quite unlike MFs, which have a declared NAV for each day. Although ETFs have their own set of problems like tracking error, commission on each purchase or sale, liquidity etc., lets keep that discussion for some other day.
 
Here is what National Stock Exchange had to say about ETFs:
 
“In essence, ETFs trade like stocks and therefore offer a degree of flexibility unavailable with traditional mutual funds. Specifically, investors can trade ETFs throughout the trading day as in stocks. In comparison, in a traditional mutual fund, investors can purchase units only at the fund’s NAV, which is published at the end of each trading day. In fact, investors cannot purchase ETFs at the closing NAV. This difference gives rise to an important advantage of ETFs over traditional funds: ETFs are immediately tradable and consequently, the risk of price differential between the time of investment and time of trade is substantially less in the case of ETFs.
 
ETFs are cheaper than traditional mutual funds and index funds in terms of fees. However, while investing in an ETF, an investor pays a commission to the broker. The tracking error of ETFs is generally lower than traditional index funds due to the “in-kind” creation / redemption facility and the low expense ratio. This “in-kind” creation / redemption facility ensures that long-term investors do not suffer at the cost of short-term investor activity.”
 
Note – To know more about ETFs and how they are structured, you can read comprehensive writeups available on NSE’s website (link).
 
Philosophy of Index Formation
 
It is also important to understand how an index is formed. Let us take the example of Nifty 50. It is made of top 50 companies of India. It is a dynamic index and keeps adding and dropping companies based on their market caps and various other factors. So, essentially, Nifty 50 is a good-enough barometer of the top Indian companies.
 
Thus an ETF taming Nifty 50 will give returns of these top 50 companies of India. Logically, this should be the best possible return one can think of. What better than top performing companies and that too tracking them almost on a real time basis?
 
But historical data shows otherwise. We all know (if not all then at least readers of this website) that lots of actively managed Mutual funds in our country have been giving better returns than Nifty (or Sensex for that matter).
 
And since actively managed funds are costlier than ETFs (or index funds), the higher expense will be justified as long as active funds, after accounting for expenses are able to beat the ETFs (and index funds) by a decent margin.
 
 
What Happens in Mature Markets like US?
 
The story in markets like US is very different from that of India. In those markets, most actively managed funds are not able to beat their benchmark indices. So purely from the returns perspective, ETFs make more sense there. 
 
An actively managed fund needs to return at least 2% more than the benchmark index to come at par with ETF. Now for all of you who have understood the power of compounding, appreciating a 2% increase per annum will be lot easier.
 
The reason which I have understood (by reading expert articles on this topic), and even though I don’t agree completely, is that Indian Mutual Fund managers are able to identify hidden stocks which may not be part of an index but are value stocks. Or, to put it differently, Indian stock markets still have nuggets of Gold hidden here and there – and that is because our markets have still not matured enough. And because of this, quite a few Indian mutual funds are able to give better returns than ETFs.
 
The Question / Deduction
 
Now the big question is that as the Indian economy grows and stock markets mature, the hidden value stocks may not remain as hidden as they are now. Also, there may be very few value stocks available over a period of time. This will make the task of Mutual Fund managers a lot more difficult.
 
Based on this logic, my understanding is that in times to come, the gap between returns from an ETF and return from a MF will reduce. And once this starts happening, it will be prudent to invest in ETFs rather than MFs. Or at least it will make sense to start allocating a decent part of your portfolio to a broader ETF like Nifty ETF.
 
Again, to take the example of developed market like USA, the debate of MF vs ETF is pretty hot. The data is very much in favour of ETF but there are equal proponents of both schemes. I remember reading one of the articles which compared this debate to vegetarian vs non vegetarian. Both advocate the merits of their school of thought.
 
Although history tells us that diversified MF are best investment vehicles, the future may be very different. So it might be wise to stay on the lookout for this development and remain cautious. 
 
MF may not be the cure-for-all as it is being told to all of us.
 
Personally, I have started allocating a part of my portfolio to ETFs (apart from the regular SIPs I do in MF). Whenever I see Nifty P/E going below 22, I invest some amount in Nifty ETF. I have started doing this very recently so have not got too many opportunities. My plan is to keep doing this regularly and may also reduce my SIP amount for a given month if I see Nifty P/E going below 20 and put this money in ETF. Or even skip my MF SIP in favour of ETF if it goes below 18.
 
What do you think? Do you think it makes sense to start looking at ETFs a little more seriously in near future?