Gold in locker means nothing, buy digital gold instead, says Swarup Mohanty, Vice Chairman and CEO, Mirae Asset Investment Manager

Time of India

28-04-2025

The past few years have been difficult for your equity strategies. How do you view this phase?
It is a new experience for us because if you look at our track record of 16 years, for nearly 14 years we have been on the right side of the market. However, in the past two-three years, it has been a very different story. Broadly, prior to October-November last year, returns had come through owing to high active share—taking concentrated bets in certain pockets or sectors. We were not convinced about that. Our view is that the
mutual fund
is a diversified product. If you change the
diversification
, the risk profile of the product changes. So, we stuck to that and, typically, a diversified fund has not performed over the past two years.
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With outcomes like that, return-chasing takes centrestage. However much you argue, nobody cares about risk. The problem was not that investors were chasing 50-60% in
small caps
. The problem was investors thinking 25% in large caps was bad. Last April, our large-cap fund was in the bottom quartile (Q4). This April, we are in the top quartile (Q1), with no change in our approach. When risks unfold, things change very quickly. To go from Q4 to Q1 without any action, just within a year, means the market has changed; we haven't.
We did not even manage a small-cap fund during these two years; we were just a spectator in this space. That's how we operate. We are the risk mitigator in the market. We remain firm. This is not a business of return-chasing; it is a business of risk mitigation. So, if you check our portfolios, they remain diversified. A few of our stocks participated in the upside, but many did not because of the nature of the market. We simply didn't agree with some of the pockets that went up. Some were misses on our part, obviously. The good part is that at no point did I see our fund management unit lose its conviction. That is important to me.
As we see the markets changing, hopefully, the quality of our portfolio should come through. We remain fully invested. Every rupee that comes in gets invested immediately. There are enough good stocks available now at good prices, which were not so just a year ago. So we are taking full advantage of this market.
RAPID FIRE
Q. What's an investment tip you'd give your younger self?
Start as early as possible with any amount and stay invested.
Q. What's the biggest lesson the market has taught you?
Market is smarter than you, so never try to time it. Try to improve your
asset allocation
skills rather than market predicting skills.
Q.What is your personal asset allocation right now?
70% equity;
20% debt;
10% alternatives
and collectives.
Q.What is a recent book you would recommend?
The Little Book of Common Sense Investing by John C. Bogle.
Q.If you were Sebi chief for a day, what is the one big policy change you would make?
There are two types of people: law maker and law follower. I am a law follower and I would make a very bad law maker.
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Are you gradually bringing style diversity in your equity strategies?
It was true for us before Covid that we follow one broad style. My belief is that while the basic inherent rules on stockpicking will remain, the styles must be different. If you see the styles that are emerging internally, Neelesh Surana comes with a different, diversified strategy, while Gaurav Misra, who manages the large-cap and focused strategies, has a focused approach. Varun Goel, who manages the small-cap and flexi-cap funds, is completely distinct from these two styles. The best part, which has happened in the past two-three years, is that fund houses display their styles comfortably now. That's the maturity of the industry.
That's where picking funds becomes a little different from what it used to be. If you're going to pick two funds with the same style, invariably you'll end up catching the market's ups and downs together. It's now key to understand the fund manager's style.
The bottom line will remain quality and diversification. We will not lose that, irrespective of the style differences our individual fund managers display. The core philosophy is very simple: buy a good business at a good price. If a great business is not available at a good price, just don't buy; wait it out. You will find a time to buy. We are getting that time now. We don't know whether this is the right price or the price will be better tomorrow. If it's better than yesterday, we buy, but we will not compromise on quality. That is why we have imposed curbs on our fund inflows twice in the past. We are comfortable sticking to quality even during times when the stocks can take a backseat.
I'm pleasantly surprised that our investors were willing to wait out the lean period. Money remained invested even when our funds were in Q3 or Q4. Investors did give us that time. This tells you that once you put in a good track record, investors show conviction.
You launched the small-cap fund during a challenging phase for the segment. What gives you confidence that it will deliver a good experience for your investors?
We have always trailed the market in new fund offers (NFOs). We typically launch a fund when the euphoria in that pocket is over because we feel assured that the investor wouldn't have come in following the herd, rather they would have taken an informed call.
We launched the small-cap fund when we knew we had the capabilities. If you look at our track record, we have proven ourselves in the large- and mid-cap pockets, but we had not demonstrated small-cap expertise. In a small-cap fund, the differentiation is clearly in the stockpicking. It's a large market. Thankfully, Varun Goel (fund manager) comes with a mid- and small-cap background, and we have an analyst team backing him up. So we have created the back-end over the past three-four years to be able to launch a small-cap fund.
It's got nothing to do with market timing. Finally, it's a business of track record. If we are able to build a good track record over the next three-four years, asset gathering will happen. We believe in Varun's stock-picking ability. He is keen on the new-age businesses coming to the market and has shown a very differentiated portfolio already.
Do you believe in the small-cap story?
The emergence of small caps is a big unlearning for me. I was in the camp that believes there is no need for a small-cap fund, but the post-Covid democratisation of the market has been interesting. Earlier, the money power of foreign investors was so large that their flows dictated the market. Now the participation of the market is very different. The Indian market is beginning to be owned by Indians, which is how it should be. Further, most of the public issuances are now in the mid- and small-cap space. This is giving multiple opportunities to fund managers. So a lot of attention is shifting to mid- and small-cap segments. You don't have a choice not to be in that space anymore.
Amid this market downturn, gold is having its moment. How are you assessing gold right now?
This has been another unlearning for me. I have previously stood up on a lot of podiums and said that equity is the only growth asset class. However, the 10-year data of
gold
versus equity paints another picture. We have been saying for some time that one needs to question the so-called 10% allocation to gold, which is the norm. Some of the data thrown up by the multi-asset funds category just showcases this over a longer period of time; median return is probably higher in a multi-asset framework than a single-asset framework. That's where the cyclical nature of all asset classes comes out. It is better to be diversified. We have talked about it, but not done much about it.
I am now in the camp that says one needs to revisit gold allocation. If you look at the fragile global scenario, the pressure for gold purchase purely from sovereigns will continue. In most of our presentations, we would maintain that gold in the locker means nothing. The day you want to buy gold, go and buy in the digital form, like gold ETFs. We are seeing that change in investors too.
The recent tax changes for debt funds have prompted investors to explore hybrid alternatives. Have debt funds lost their relevance?
As an industry, we have become very defensive about this taxation angle. I don't see why because the investor is still buying bank FDs worth Rs.23 lakh crore. Last year, the liquid fund average return was 7.2.%, which is as good as any FD in the market. The investor continues to invest in debt. I don't think the investor is so bothered by the taxation change as much as we talk about it. The fact that they are investing in bank FDs means that we have not been able to convince investors on the merits of our debt products. Clearly, we missed that bus.
In mutual funds, the investor is favouring the so-called hybrids. As long as they are aware of change in the risk profile of the product they are investing in, it is fine, but return-chasing should not be the criterion of asset allocation. The next one-two years will be very good for debt. So why do you need to take more risk for what you are aspiring to achieve? You will achieve it by the nature of the fund itself.
It's a very interesting time to be an investor. The equity markets are reasonable, tending towards becoming fair. Due to interest rate changes, long tenure debt is back in the game, and gold is looking good for the reasons we discussed earlier. Rarely do you find a space where all asset classes are in your favour. The people who had followed asset allocation would have money to buy today. Those who did not would be in losses. If you buy today at these levels, you can change the outcome of your future returns by a fair margin because of the prices you are getting now. One invariably misses such opportunities because of lack of debt allocation.