LIC Mutual Fund was established on April 20, 1989, by LIC of India. Being an associate company of India's premier and most trusted brand, LIC Mutual Fund is one of the well known players in the asset management sphere. With a systematic investment discipline coupled with a high standard of financial ethics and corporate governance, LIC Mutual Fund is emerging as a preferred Investment Manager amongst the investor fraternity.
Replying to IIFL, Ramanath Venkateswaran says, "Indian economy is currently in a phase where the excesses of the past boom are getting corrected. A lot of companies have undertaken measures to improve their efficiency, reduce their excess leverage."
Why should one consider Equity linked savings scheme over other tax savings instruments?
ELSS has the following advantages for a retail investor:
- lock-in of 3 years makes an individual have a longer time frame for investing (and helps overcome the speculating tendencies), which is typically quite good for wealth creation;
- benefit of tax efficiency. Stock markets typically have a tendency of being volatile in the near term, however, the long term track record of wealth creation has been better compared to other asset classes as our economy remains on the growth track aided by the structural factors.
If we look at historical performance for several of the ELSS funds the performance in long run has been phenomenal with funds clocking more than 15% on an annualised basis, at least. Do you think this kind of impressive returns can be delivered by the industry in general in coming years?
Expecting the impressive returns of the past few years to sustain may not be wise. However, equity remains a better bet compared to other asset classes over the next few years. Interest rates may trend downwards given the inflation outlook and relative stability of the exchange rate. Similarly, the other favoured asset classes like real estate and gold face headwinds from the recent demonetisation measure of the government and an appreciating dollar.
What is the trend you are witnessing for your ELSS fund? Are more and more investors preferring to invest in ELSS schemes?
We have definitely seen an increased interest from investors for our ELSS fund.
We find that more and more investors across India are preferring to participate in equity funds via SIP route. Is it true for ELSS schemes also?
Our experience also suggests greater preference for the SIP route for investing in our ELSS fund.
Can you please share with us the growth in AUM for your ELSS scheme?
Our ELSS scheme has seen ~20% CAGR in AUM over the past 4 years.
How to choose a better performing ELSS mutual fund scheme?
A well-defined investment framework and a steady approach to markets are metrics to choose an equity fund. These are remain the main attributes to choose a ELSS scheme.
Going forward how do see the equity markets performing in long run?
Indian economy is currently in a phase where the excesses of the past boom are getting corrected. A lot of companies have undertaken measures to improve their efficiency, reduce their excess leverage. These might present interesting opportunities over the next few years. The underlying theme of the economy in terms of favourable demographics, reasonable competitive advantages in IT, pharma, engineering industries remains intact and buying companies in these sectors at reasonable valuation will continue to remain a good bet.
How do you see demonetisation affecting Indian economy and how do you think the equity prices will react to the demonetisation effect in medium term? Or has the equity market already discounted demonetisation effects?
Effects of demonetization in the near term in terms of lower demand are well understood. However, the longer term consequences—some of the competitive advantages of certain businesses may permanently be eroded or there could be companies which can disproportionately benefit from a higher digitization of cash - are not well understood currently. Gaining an insight into the likely winners and losers over the longer term will create wealth.
How will demonetisation affect the economy in the upcoming quarters?
Near term demand in the economy is likely to be impacted in the next few quarters. This is a fairly settled assessment. However, not all businesses are likely to see a rebound in revenues after the initial few quarters. The low-end consumption demand sectors are likely to be the amongst to pick-up whenever the rebound happens. High-end consumption may take a while before the traction of the past few years returns. Some of the businesses which were benefiting from the cash economy may see their competitiveness being eroded on a permanent basis.