Mutual funds manage to keep 20-yr streak going

If a person invested Rs 1,000 per month as SIP for 20 years, these schemes would have turned the Rs 2.4 lakh into Rs 55 lakh

India's equity mutual fund schemes, with over two decades of track record, have made hefty wealth for investors. Investments made through the monthly systematic investment plans, popularly known as SIPs, are at multifold valuations currently.

This explains the fact that the longer the investors stayed, the more is the wealth creation, irrespective of the market fluctuations. The Indian mutual fund sector, still considered to be in nascent stage, given the poor penetration of its products, is home to several schemes which have a reasonable and respectable performance chart for a period exceeding 20 years.

Some of these schemes include Franklin India Prima, Franklin India Prima Plus, and Franklin India Bluechip from the stable of Franklin Templeton Asset Management Company (AMC); HDFC Capital Builder and HDFC Equity from HDFC AMC; Reliance Growth and Reliance Vision from Reliance Mutual Fund; and ICICI Prudential Multicap Fund from ICICI Prudential AMC. All these are 20-year-plus funds and have made handsome annualised returns of as high as 23 per cent for investors.

For instance, if an investor had maintained discipline while investing Rs 1,000 per month as SIP for the last two decades, these schemes would have turned the Rs 2.4 lakh of investment into as high as Rs 55 lakh — nearly 23 times over 20 years. And had it been a one-time investment of Rs 1,000, the value would have reached beyond 40 times.

Sivasubramanian K N, a former chief investment officer (CIO) of Franklin Templeton AMC, had told the Business Standard, "Fortunately, we have not made very large mistakes. But in momentum and a very bullish market, generally our style of investing probably lags behind the broad markets. But over a cycle, the returns are either par or even better. We had stayed away from momentum investing and there were periods when we were under intense pressure. The learning is that if we stick to fundamentals, it works. Any deviation in the past against this philosophy has hurt us."

Interestingly, all these schemes have seen several cycles in the stock market - the underlying asset - and have emerged with an established and tested performance track record; something an investor always wants to look for.

For those who forgot the developments in the past two decades with which these schemes had to struggle with, here is a quick flashback.

In the first decade of these schemes' existence, they witnessed the initial stage of India opening to the world as a big market through economic liberalisation under prime minister P V Narasimha Rao's government, Harshad Mehta scam, Congress losing elections in 1996, Asian currency crisis of 1997, nuclear tests by India in 1998 inviting US sanctions making Sensex lose 20 per cent in a mere two months, Kargil war of 1999, tech bubble of 2000, 9/11 in 2001, Ketan Parekh Scam, UTI crisis, BJP (Bharatiya Janata Party)'s India Shining campaign in 2003, BJP's loss in 2004 elections, Lehman Brothers crisis and Satyam scam in 2008, re-election of UPA (United Progressive Alliance) government in 2009, scams - 2G, Commonwealth Games and coal in 2011, quantitative easing 3 (QE) in 2012, QE taper worry in 2013, and twin deficits (current account deficit and fiscal deficit) amid high inflation, and BJP's stunning win in general elections in 2014.

Sunil Singhania, CIO of Reliance Mutual Fund, says, "Investments made in equity as an asset class will always make money for investors in the long run. There is no second thought on this. Our schemes withstood all these developments over the past 20 years. In a short term, such events do impact the schemes but in the long run the impact diminishes. In recent years, the pace of wealth creation has been much faster as our economy took 60 years since independence to reach a $1-trillion mark but it was doubled in the next few years only. I believe in the next seven-eight years, India will be a $4-trillion economy."

Fund managers are of the view that India is a growth economy and investors do not invest in India's growth story they will miss the bus only to repent later.

Prashant Jain, CIO, HDFC Mutual Fund, says, "Equities are volatile in the short term but in the longer term, it outperforms virtually every other asset class. Equities are a great compounding machine and India had and has great growth prospects.Asset allocation is the key to successful investing and surprisingly it is also the most neglected. After asset allocation all that an investor needs is patience and discipline."

Currently, the equity asset size of the mutual fund sector is about Rs 4 lakh crore while the equity investors' base is around 36 million.