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Time matters, timing the market doesn’t

Time matters, timing the market doesn’t
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First Published: Wed, Mar 24 2010. 10 41 PM IST

Disciplined approach: FIL Fund Management’s Sandeep Kothari. Shriya Patil Shinde / Mint
Disciplined approach: FIL Fund Management’s Sandeep Kothari. Shriya Patil Shinde / Mint
Updated: Wed, Mar 24 2010. 10 41 PM IST
Fidelity Tax Advantage Fund (Dividend), which won the Morningstar India ELSS (Tax Savings) award, did well in falling as well as rising markets. Sandeep Kothari, the fund manager, tells us how this tax-saving fund managed the feat. Edited excerpts:
How did you navigate the ups and downs of 2008 and 2009?
Disciplined approach: FIL Fund Management’s Sandeep Kothari. Shriya Patil Shinde / Mint
While the last two years have been difficult, what helped was staying close to our investment philosophy of bottom-up stock picking and staying focused on consistent risk-adjusted returns. We maintained a disciplined approach to understanding companies that we were investing in.
Fidelity diversifies in a large number of scrips across its funds. You do not have huge pressure of inflows and outflows, so how come you aren’t more concentrated?
I do have a 50-60 stock portfolio with a tail of about five to seven stocks where we are either trying to build a position or exit one. But diversification is an important parameter and a concentrated portfolio can become volatile. I focus on building conviction in the stocks I hold.
Investors start tax planning at the end of the year. Is that okay?
Investing as early in the year as possible helps as it gives your investments more time in the market.
Also See | Fidelity Tax Advantage Div (Graphic)
Do you think markets are overheated? If yes, do you think investors should book profits?
I think that the business cycle is playing out and assuming that it plays out as we expect it to we should see continued earnings momentum in stocks. For investors, though, it is important to remember that it is time in the market and not timing the market that matters. And mutual funds are the best route to ensure this.
We analysed the Indian stock market data for 10 years from February 2000 to February 2010. Based on the daily returns of the Sensex, we identified the best 10, 20, 30 and 40 days. If you had a notional investment of Rs1 lakh and you remained invested from 2000 to 2010, the value of your investment would have been Rs3,01,600. But if you missed the 10 best days, your value would be Rs1,39,741. A loss of Rs1,61,859. Not surprisingly, the more the number of “best days” that you miss out, the more dramatic the fall in your returns. Miss out on the 40 best days and the value of your investment would be Rs32,999. That’s Rs2,68,601 less than you would have got if you had remained fully invested.
Graphic by Yogesh Kumar / Mint
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First Published: Wed, Mar 24 2010. 10 41 PM IST