Subra is it all right to park some money in an index fund for a few months – say 18 months asks a reader?

Tough ask, but a fair question I thought. The Sensex has been behaving very well even over short term periods of say 15 months and like Riddham Desai said at the Morningstar Investment Conference, we are in a bull market from 2009 till date.

So people asking such questions is par for the course, is it not?

I said ‘Hardly’.

The absence of risk does not mean the elimination of risk. I told him. I reminded him that risk does go on leave from time to time. It went on leave in gold, people think it went on leave in Real Estate. Why even cash was risky in November 2016, so do not assume that risk has died, it may be unconscious, that is about all!! People have been seduced to equity as an asset class without variance.

There has been no tsunami for the past few years does not mean there cannot be another one. Or do not assume that Mumbai’s gutters are so clean that there will be no flooding which will kill people in the future. We are just saying that it has not happened for a long time.

Explaining that to investors can be trying at times, – many clients are more than willing to sell their ‘spare house’ and invest Rs. 3 crores in equity. What is bad about this? Well she is a 54 year old professional who has entered the market at the young age of 51 and now has a portfolio of Rs. 38 lakhs. She THINKS she has tremendous appetite for risk and it is perhaps more difficult to explain to her that such a big amount (by her standards) should not go into equity in one shot. Selling prudence in a risk-free world is akin to selling ice to an Eskimo. No one seems to want it or need it. (ha prudence the verb not Prudence the noun!!)

Only after risk comes back from leave and rears its head will prudence be back in demand. Right now low volatility has meant that people are thinking of equity as a public provident fund with 12% assured return. I do think that the 12% may be right but it could be 48, 0, 0, 0, making it 12% and not 12, 12, 12, 12 making it 48!!

Today I read in the pink papers that next year will again be 12%. Wow. I got a few one year calls right, but I make those calls for fun – it does not decide my asset allocation. I stick to a very high equity asset allocation and am always ready for a 30% fall in the value of my portfolio. I know it will come. I do not know whether it will be in 2018, 2019, or 2029. It is just par for the course.

Like Prashant Jain says ‘there is no bull or bear run in Indian markets’ – some shares will go through the roof and some will tear down the floor. So next time around you might see Hdfc bank at a much lower pe and Sun pharma at a much higher pe. Possible? yes of course. Am I selling Hdfc bank and buying Sun? No, dammit I am holding on to Hdfc and Kotak. I may be adding Sun on a monthly basis till if gives out a break out signal.

However I am ready for a 30% fall in my portfolio. Are you? If you are not are you nimble footed? I am not.

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  1. Hi Subra
    Have been your avid follower. Here’s my question needing your suggestion.

    I have invested 45 lacs in Liquid/Debt funds over the last 6 months from which I had started to do STP to Equity/Balanced funds. I had not invested the amount directly in Equity funds as i will be redeeming 90% of the money invested within the next 4 months to purchase a flat (costing about 40 lacs).
    I also have 32 Lacs unutilized funds right now which I want to invest in some 5-6 good mutual funds for atleast 4-5 yrs.
    1. What are some of the good funds that I can invest this 32 lacs in? I’m looking for High performing funds which will yield yearly returns of Rs.45000 from year 3 onwards. And there are no other financial goals I have apart from the above situation.My risk appetite is average.
    2. Can I invest say 5 Lacs in say 6 Funds in one shot? is it advisable to do this considering that the NAV may be at peak for some funds? Or whats the other way to distribute and invest 5 Lacs in 6 funds max?


  2. Nice post subra…
    Now how can a person be ready for a 30% fall in his porfolio( for a typical MF investor with limited investments in Direct Equity) and no change in asset allocation percentages for different goals(ie asset allocation numbers are within the required ranges and no need for rebalancing.

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