Steady SIP Flow, Fund M&A, and Behavior Gap

 

We discussed the pitfalls of chasing returns and the “behaviour gap” with Bloomberg Quint in this weeks Mutual Fund show. In the Journal of Banking and Finance, 2007 paper titled Mutual fund flows and investor returns: An empirical examination of fund investor timing ability author Friesen and Sapp look at this question –  does timing the buying and selling on equity fund improve investor returns?

They look at 7,125 Mutual Funds in the US over a 13 year period and calculate two measures of returns. They find that while an average fund manager produced 0.62% of monthly return in the sample, the average investor could only capture 0.49% of monthly return. Market timing thus cost the average investor -1.56% annually in lost returns compared to a simple buy and hold strategy.

They conclude:

 

 

Over 1991–2004, equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns.

 

 

The culprit is our tendency to chase returns. We buy a fund after it has delivered good returns and sell after it delivers bad returns, precisely the behaviour we should avoid. This is what leads to a behaviour gap in our returns.

 

Interested in learning how our behaviour can cost us in lost returns? Read more here. 

 

The total AUM of the mutual fund industry stood at Rs 24.5 lakh crore as on 30th September, down from Rs 25.4 lakh crore in August. Mutual funds saw net outflows of Rs 1.51 lakh crore in September, led by outflows from liquid, money market and ultra-short duration funds. The SIP book stayed strong at Rs 8,262 crore in September, a Rs 32 crore increased from Rs 8,230 crore in August.

 

Reliance Nippon Life Asset Management (RNAM) has been renamed to Nippon India Mutual Fund, following the acquisition by Japan’s Nippon Life Insurance. The names of existing schemes have been changed accordingly. The company has announced that they will continue to run their operations without any change in structure. Sundeep Sikka will continue to be the CEO of the company with its existing management team.

 

Bank of Baroda has entered into an agreement with BNP Paribas Asset Management Asia to merge their Mutual Fund business, subject to regulatory approvals. The average assets under management for the Baroda AMC stood at Rs 11,320 crore and BNP Paribas AMC was Rs 10,073 crore, as of 31 March.

 

The Competition Commission of India has approved the acquisition of Essel Mutual Fund by BAC Acquisitions Pvt Ltd. In a statement, the CCI stated that it has given approval for the acquisition under the ‘green channel’ route. BAC is a private company founded by Sachin Bansal. The acquisition is subject to approval from the Securities and Exchange Board of India.

 

 

Index Returns

Index 1W 1Y 3Y
NIFTY 50 1.2% 10.4% 9.1%
NIFTY NEXT 50 -0.3% 3.0% 4.1%
S&P BSE SENSEX 1.2% 12.1% 10.7%
S&P BSE SmallCap -0.3% -7.4% -1.3%
S&P BSE MidCap 0.5% -1.2% 0.6%
NASDAQ 100 1.2% 12.6% 17.6%
S&P 500 0.6% 8.8% 11.6%

Source: BSE / NSE

 

Top 5 best performing funds

Name 1W 1Y 3Y
Invesco India Feeder Pan Euro… 5.0% -10.0% 6.9%
Franklin India Feeder Europe… 3.2% -11.6% 1.5%
Invesco India Feeder Global E… 2.6% -3.3% 8.7%
ICICI Prudential Exports & Services 2.6% 0.7% 4.6%
Kotak World Gold 2.3% 29.7% 2.2%

Source: Kuvera.in

 

Top 5 worst performing funds

Name 1W 1Y 3Y
DSP Natural Resources & Energy -1.8% -1.1% 6.3%
ICICI Prudential Yield Equity -1.5% -2.3% 3.4%
Invesco India PSU Equity -1.2% 15.3% 4.0%
SBI PSU -0.8% 4.6% -1.5%
L&T Emerging Businesses -0.8% -5.7% 6.1%

Source: Kuvera.in

 

What Investors Bought

We saw the most inflows in these 5 Funds –

Name 1W 1Y 3Y
Mirae Asset Emerging Bluechip 0.6% 14.2% 10.9%
Motilal Oswal Multicap 35 0.5% 13.6% 8.8%
Parag Parikh Long Term Equity 0.3% 8.7% 10.6%
Mirae Asset Large Cap 0.9% 12.2% 11.1%
UTI Nifty Index 1.2% 11.7% 10.2%

Source: Kuvera.in

 

What Investors Sold

We saw the most outflows in these 5 Funds –

Name 1W 1Y 3Y
Franklin India Smaller Companies -0.2% -3.0% 0.8%
Tata Equity PE 0.5% 8.4% 8.6%
JM Core 11 1.5% 18.7% 9.8%
L&T Emerging Businesses -0.8% -5.7% 6.1%
Franklin India Prima 0.2% 6.9% 5.2%

Source: Kuvera.in

 

Movers & Shakers

1/ Anand Shah, Deputy Chief Executive Officer and Head-Investments at BNP Paribas Mutual Fund, has resigned from the fund house. Further, Chockalingam Narayanan has been re-designated as Head of Equities with effect from 05 October 2019.

2/ Sundaram Mutual Fund has announced that Arjun G Nagarajan has been appointed as Chief Economist and Communications Manager and designated as a Key Personnel of the company, with immediate effect. 

3/ Aditya Birla Sun Life Mutual Fund has announced that Gopalaraman Padmanabhan has been appointed as an Independent Director on the board of Aditya Birla Sun Life Trustee Private Limited, with effect from 07 October 2019. 

 

Quote of the week:

 

 

In my view, the biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. Not only is the mere drop in stock prices not risk, but it is an opportunity. Where else do you look for cheap stocks?

: Li Lu

 

 

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