Here is a list of unsubstantiated opinions about mutual fund investing. This is a follow up to the Do's, Don'ts and Myths of mf investing.
1) Date of SIP matters
No it does not! You can find articles that it does in moneycontrol! Check for yourself. Go to the sip calculator at thefundoo.com and try out different SIP dates for any mutual fund you like. You will notice that the returns vary only the decimal points.
SIP when you like. Just don't SIP all your investible surplus. You will have trouble if you get an unexpected expense. Leave a buffer.
2) Daily SIP is better than Monthly SIP!
No it is not! Check for yourself: Comparing SIP Returns: Monthly vs. Daily vs. Quarterly SIPs
SIPS only average risk of buying. It does not average the risk of holding the corpus. The entire corpus is subject to full market risk whether you buy every day, month, quarter or year!
Just imagine the length of an account statement of a daily SIP!
3) SIPs reduce investment risk!
No they don't! For someone with no access to a lump sum, SIP or periodic investing is the way to go. As mentioned above, SIPs average the entry point of the next installment. Sometimes you buy more units and sometimes less. So there is an averaging here.
SIPs do not average risk of the accumulated corpus. It is subject to full market risk.
SIPs make you invest systematically. That is a fact. SIPs do not make you disciplined though!
4) ELSS funds perform better because of the lock-in
No they do not! There is not proof of that! See: The Myth About ELSS Fund Lock-in
The trouble with active funds is that they depend way too much on fund management. It is not possible to compare two different fund managements, one with a lock-in and one without.
Some people claim that Quantum tax saver is a clone of Quantum Long term equity. If this is so, and if the notion about ELSS lock-in is true, the tax saver should have beat QLTE. Sorry, ain't so.
5) STPS are better than a lump sum investment
No they are not! Whether you invest a lump sum in one shot or stagger it over a few months, some months later, it is just the same amount which will be exposed to full marker risk. Not convinced? Check for yourself: Comprehensive Mutual Fund Investment Mode Comparator
6) AUM of a fund affects performance
The jury is out on this one. When it comes to large cap funds, I dont think we have reached AUM sizes where size affects performance. Size affects churning ratio. That much can be said with confidence. See this case study
The trouble is, how do you define performance? With respect to benchmark to with peers? Benchmark is easy, peers is tougher as there are multiple ways to choose peers.
When it comes to mid and small-caps, it is difficult for the fund to remain style pure if the AUM increases. That much we can say from history. We cant say for sure if this affect performance or not because of notion no 7.
I think we can say this much: beware of over exposure to funds with extremely narrow mandate (Franklin Smaller companies, DSP Microcap etc.). When the going is good, everything will be hunky dory. When the markets tank, the low liquidity of the holdings will bring down the NAV of such funds higher than other categories.
7) Mid and Small-cap funds return more than Large cap funds
Not enough data to state this. We only have 18 mid/small-cap funds which are at least a decade old. Among them, only about 3-5 funds* (eg. ICICI Value discovery, Sundaram Select Mid cap and Reliance Equity Opportunities) have managed to beat large cap funds for lump sum investing. For the SIP route, things are a lot worse!
You can check lump sum returns at VR online or use the SIP calculator at thefundoo to quickly check this for yourself. This is something that I show in the investor workshops. Not all funds in a category are there. Just whatever I could get at thefundoo. This was prepared about 5 months back. I will post an updated version soon.
- This depends on when you analyze for both SIP and lump sum routes.
So just because I invest in select mid and small cap funds that have beat others, I cannot assume that the category itself will beat large caps. Perhaps that his can occur in future. Until then there is substantiation.
Do not over expose yourself to mid and small caps in the name of aggression. They could scar you permanently. I prefer a folio with about 70-60% of large caps. It is certainly possible for a mid and small cap fund to beat large cap fund. To ensure that you have such funds in your folio, you will need to monitor and perhaps switch funds or shift profits from time to time. There is no free lunch.
As regards notion (6) even a large mid and small cap fund with large cap exposure to maintain liquidity can beat a style pure mid and large cap fund. So no generalizations can be made.
8) Index funds will eventually beat all active funds so invest in them now!
This is not exactly an unsubstantiated notion. It is an irrelevant one for least the next few years.
So you have read the writings of Warren Buffett and John Bogle?! Fantastic. Treat yourself to another book by them from Flipkart and invest in active funds!
The alpha generated post-expenses is to large to be ignored. As of now beating indices is child's play for fund managers. More than 80% of them managed to do this. This is the exact complement of the situation in the US. It will take a while to get there. In the meanwhile I am going to enjoy my alpha, rebalance periodically and lock the gains in my debt holdings.
Ultimately what matters in life is, how much I have? and not how much is my XIRR?!
9) Closed-ended funds will out-perform open-ended funds because of no redemption pressure
We need data over several years to conclude one way or the other. Until then, it is a sales pitch.
10) Time in the market is more important than timing the market
Surprised?! If you make this statement from the point of view of behavioral finance, that is, if you have study the investing habits of say, 100 people, then I will agree, time in the market (those who held on through ups and downs) is better than timing the market (those who tried to make tactical calls).
As an investment strategy, this one is tough to prove or disprove in the Indian context and even in the US context. For every article that claims one, I can find one that claims the other. Hence I categorize it as an unsubstantiated notion.
That said, the trouble is, one can always 'find' a strategy with back-testing that would have beat the market in the past. Since there is no guarantee that it will work in future, it is best not to take such strategies too seriously, unsubstantiated or otherwise.