‘Equities give better returns in longer period’

With fixed income investments giving lower returns, investors are facing a dilemma as to where to put in their hard earned money. On the other hand, the equity market’s volatile run continues to discourage retail investor. In an exclusive interview with Express, the CEO of IIFL Asset Management Business spoke about the equity market, how his firm’s new product claims to provide safe returns and more. Excerpts:

How will an equity investor make money in a domestic stock market which is so volatile?
In the long term, equities always make a good amount of money. The problem is that we don’t invest in equities at all and we lose out on that. We have `110 lakh crore of money deposited in banks’ fixed accounts. Internationally, equity allocation ranges 20-25 per cent of the total portfolio. But here, it is less than 5 per cent.

The thing is, one should not get scared of volatility and enter/exit the market. If you look at the structural basis, the market looks quite positive in the medium to long run. But, having said that, it won’t move in a linear direction as we have a mixture of domestic issues and global events (influencing it) this time.
How do you ensure that your product provides security from volatility and gives a healthy return?
The IIFL Capital Enhancer Fund- Series 1 is tailored with an objective to limit the downside by investing in a ‘put option’, thus providing the investor a hedge against a market correction.  Our studies have shown 95 per cent of portfolio returns in the long term are derived from appropriate asset allocation and only 5 per cent derived from product selection. The scheme will invest predominantly in large cap portfolio and hedge the portfolio with the Nifty 50 Put Option, allowing investors to invest in a theme that aims to ‘minimise the risk and maximise the upside.’

What kind of return should an active equity investor expect in the next four-five years?
India structurally is growing at 11 per cent and good companies are growing at 14-15 per cent. So, if you are a four-five year investor, you would end up earning 14-15 per cent of the compounded return — which is what has been seen in the four-five year rolling basis in India.
What is the rate of equity allocation among HNIs compared to retail investors?
Among HNIs, we have seen a clear shift happening. At present, the equity allocation for HNI individuals is 25-30 per cent and for retail investor, it is less than 10 per cent. But, we are witnessing a gradual shift in them as most of their money is coming through SIPs so that book is built over a period of time.

Do Indian investors like to invest money outside India?
They don’t invest anything outside of India.
If you look at the LRS money going outside, it is very small and within that most of the money is used for buying real estate offshore. Just to give some perspective, $800 million goes out in the LRS and out of that money, $200-300 million lies in the bank account, and around $400-500 million gets invested in real estate. Hardly $100 million gets invested elsewhere which is insignificant.