It must have been in 1998/9 when I heard about SIP for the first time from Suraj of Franklin Templeton – he now is the boss man in UTI.
A fan of SIP me and many others like me have been espousing the cause of SIP for the past 20 odd years. It is a great product and has done a great job in the wealth creation process.
However, the BFSI always overdoes the good thing. Home loan a great product, but teaser loans, and all such ‘innovations’ – NINJA (No Income, No Job Applicants), securitisation,..are all harmful and did hurt the home loan industry.
Term Insurance – a great product, but Endowment and its cousin ULIP were the bastardization of a good product.
Educational Loans – have dramatically increased the cost of education and the pressure on students.
Are we over doing the SIP?
I am not so sure. I asked India’s biggest fund managers and they said – and I am just repeating “No Subra. Our market cap is much too high and we need not worry’.
Will so much of SIP make a fund manager lazy? “No Subra, we are competing amongst fund managers and we will want to be the best, so we will not become lazy.
Will a FM continue to keep buying the same shit and protect his Nav? “NO Subra when a company produces bad results shares will tank, FM can do nothing. He does not hold enough to protect the NAV.
Will a FM run out of investing ideas? “No Subra that cannot happen because each sector goes through a boom and bust..so when one sector is booming, the FM can always buy some other sector.
Sorry but I have my own views which are slightly different. One has to see the market cap NOT of the whole market but the Universe of shares in which fund managers have significant stake. Which means there is no point in looking at shares like Gillette, PnG, Bosch, MRF, Lakshmi Machine Works, Eicher – the fund manager cannot get in and get out fast in such scrips. So one has to take an intelligent guess about the market cap in which the funds themselves deal.
I was appalled at the bonuses that some of the fund houses have paid out – because the income of the fund houses is booming – given the jump in SIPs. Fund houses have of course reduced the head count – the SIP is selling itself. Sebi says “IAP should not be used for getting new clients – but this is observed MORE in the breach.
So where is all this heading?
I do think all fund schemes that are popular/ very popular like Hdfc Top 2oo, Birla Frontline, Hdfc Prudence, Hdfc Euity, Icici Pru Bal adv fund, I Pru bluechip, Franklin Prima Plus, Reliance, ….will soon have much more money than what they can manage. And all of them have a benchmark index (PMS does not). So they will all do closet Indexing.
Alpha will disappear. Or it will become so insignificant that it will be impossible for the IFA (OR the Robos!) to identify the potential aplha creators. So we will go the American way – index under-performance. When will this happen? circa 2022 I guess.
Will my bluff be called? perhaps yes in 2023 I will accept my defeat if I FIND it EASY to spot the NEXT star.
source: subramoney.com