Plethora of liquidity is blunting edge of SIPs

In the past various AMCs have temporarily halted SIPs in their small/mid cap funds. But an AMC head pointing out the dangers of SIP flows leading to unsustainable valuations of small and midcap Companies certainly requires integrity and tons of courage. Hats off Mr Sankaran Naren 

·       To call out the elephant in the room, specially when it goes against your performance incentives and targets of AMC is a bold move. There are a few AMCs which would take advantage of these overheated market to launch exotic thematic fund at peak of cycle (Investors in such funds have had a huge negative MTM since launch at peak) and there are few like S Naren who take their fiduciary responsibility seriously. 

· Neil Borate of Mint had earlier called out that AMCs need to have a bigger role than just channeling investor flows, citing example of PPFAS Mutual Fund which has taken an outlier call to hold high cash levels. AMCs also have a duty to protect the sector from systematic risks of a heated asset class. Am glad another AMC head has voiced his concern. 

·       In Developed countries while the passive funds have been around a long time, still the issue of market corrections not coming about to reset to intrinsic values has become a major problem which various marquee investors have been pointing out. However, in nascent equity market like India, while the large caps are trading at reasonable valuations and have not run up to absurd valuations, the mid and small caps have seen a very large run up due to size and .market depth issues in these stocks.

·       I believe in a market driven by sloshing liquidity, asset allocation and active management  of portfolio(by a fund manager who can sit out for a while, case in point PPFAS – 20% cash) will become increasingly important going forward.

·       Market will give fewer opportunities and there would be need to capitalize on those.  A regular SIP (unless done for long periods without losing conviction midway) would no longer be the panacea. 

·       Other asset classes like Real estate suffer from challenges of illiquidity, lack of modularity, no option but to allocate all money at one go. However, Equity is one asset class which provides you with luxury of not investing when “Mr. Market” is approaching you with an obscene valuation. This is something which should be capitalized by Equity investor, wouldn’t say its market timing but its certainly important to sit out when your panwadi is talking about new IPOs.