How to clean up your portfolio this Diwali? Sundeep Sikka, CEO, Nippon MF, has a 3-step move

Sundeep Sikka, CEO, Nippon MF

Apart from being India’s fourth-largest mutual fund (MF) house, Nippon Life India Asset Management Limited is also the largest, completely-foreign-owned fund house in the Rs 47.8 trillion Indian MF industry, a rare sight at the top of the chain, of an industry that’s seen many foreign firms exit over the years.

But that wasn’t always the case. Launched in 1995, the fund house was previously known as Reliance Capital AMC. In 2012, Japanese insurer Nippon Life Insurance acquired 26 percent stake in it. In 2019, Nippon increased its stake to 75 percent. At present, per its additional information statement, the firm owns 73.4 percent, and is listed on the stock exchanges.

One of the many things constant with the fund house throughout this transition has been its chief executive officer (CEO) Sundeep Sikka. Sikka is the sixth longest-serving CEO in the history of the Indian MF industry, and the fourth longest-serving among the current heads of fund houses, according to Value Research. He joined the fund house in 2003, became the deputy CEO in 2008, and was elevated to head it in 2009.

Diwali clean-up

How to clean-up your portfolio this Diwali, we asked, straight off the bat. Sikka believes you do not need 30-40 (or more) schemes in your portfolio. However, over time, many of us add newer schemes and end up with bloated portfolios. “Do not invest in a scheme just because it did well last year. You will keep chasing performance that way. But by the time you invest, its best run would be over,” adds Sikka.

He suggests that in your portfolio, try to identify four-five good fund houses. Stick to one or two schemes in each depending on your financial goals, and ensure there is variety. Have up to 10-12 schemes in your portfolio, says Sikka.

Show me the money

While fund managers are busy managing the market volatility at present, who’s taking money off the table now, and who’s putting more money in funds, we enquired next. Sikka said that at the moment, existing retail investors are topping up their Systematic Investment Plans (SIPs). “High-networth individuals (HNIs) and institutional investors appear to be booking profits, as it usually happens when equity markets run up,” he adds.

Inflows in MFs through SIPs have gone up in recent years, but per data from the Association of Mutual Funds of India (AMFI), nearly 50 percent of investors withdraw their investments before two years. So, have investors really matured? Sikka assures they have, but adds: “I do not blame investors if they ask ‘kitna milega?’ (how much will I get?) before investing in MFs. If you are putting your money to work and giving it to somebody else (the fund manager), it’s reasonable to ask that. It is our job as asset managers to educate them as to how MFs behave and make money,” he says.

Where to invest Rs 10 lakh now?

Sikka says the markets are closely watching the Israel-Hamas war and how that impacts the geopolitical situation, but adds that he is also mindful of “multiple events” that are coming up. “Over the next 12 months, two of the world’s biggest democracies (US and India) will go in for elections. The next 12 months are not going to be easy. While these events will have a bearing in the short-term, India’s structural growth story matters as well. As long as corporate earnings continue to grow, the future is bright,” says Sikka.

Sikka suggests a 50 percent allocation to large-cap, 20-30 percent to mid- and small-caps, and the remaining in fixed deposits and debt MFs.

New fund houses

An unprecedented number of new fund houses, like Trust MF, Samco MF, NJ Mutual Fund, and WhiteOak Capital MF have entered the industry of late. In 2023, Bajaj Finserv, Helios, and Zerodha MFs started their operations. The question is: do we need more fund houses or distributors if the industry were to go from India to Bharat (urban to the hinterland)? “We need both; you also need more professionals joining the industry,” he says.

What’s the one piece of advice he’d give to newly-launched fund houses? “Mutual fund houses need to have a long-term vision. Many times, the senior management keeps changing. That shouldn’t happen. Strategies also shouldn’t keep changing,” says Sikka. He adds that many times fund houses focus on gathering assets under management (AUM). “Focus on investors instead. If the number of investors grows, the AUM grows,” he says. According to Sikka, the short-term strategy of growing the AUM also leads to few investors holding large sums of money. If they withdraw suddenly, it could lead to fund managers focusing on day-to-day returns, which may not be very healthy in the long run, he explains.