My experiences with MF investments

In the recent posts I have covered different aspects of MF investing. Several people have requested me to share my own experiences with investing in MF and I will take that up in the current post. One caveat which is important to understand is that I am not recommending you follow my journey, If at all you want to follow my current investment approach.

My wife and I were introduced to Mutual Funds in a meaningful manner in 2001 when we had been in Chennai for a few years. Of course, I knew about MF before that, mainly through an erstwhile batch mate from IIM Calcutta, who went on to become the Fund Manager for Franklin Templeton. Many of you may know of him or have met him. However, in those days our investments were mostly in Debt instruments with a sprinkling of stocks. When the Financial Advisor explained to us about investment in MF as an alternative to stocks, it did not seem like a great idea at first. Remember that in 2001. the markets were down, there was general recession in the IT industry and the mood was fairly somber. Even then we decided to try out this new avenue in order to see how things transpired.

Our first investments were in Franklin Blue Chip and two other funds from their stable. The total invested amount in Franklin Blue Chip over 3 purchases was 50000 Rs, the average price in the beaten down conditions was about 10.5 Rs. Over the years, the fund has given dividends of 2.35 lacs and is current value is about 4 times our original investment. The CAGR is not given in the Franklin site and I am too lazy to calculate, but a good estimate will be between 18 and 20 %. I still hold my investment in this and have no plans of redeeming it. My wife has also done the same for the other two funds.

The other fund I invested in was Prudential ICICI Technology fund, courtesy my being from the IT industry. The NAV was only 3.27 Rs then but I was convinced it will improve over time. My total investment in this was 60,000 Rs and I got roughly 20,000 units for it. I have sold about 15000 units in 2006 with 100 % gains and hold the rest even now. The dividends from this has not been significant as the fund has had its ups and downs – total was about 35000 Rs. From the ICICI site I can see that the current XIRR value is 24.85 %.

Thus my initial experiences with MF has been fairly good. Even then I stopped investing further in these from 2002 onward. The main reason was that we had bought an apartment in Chennai with a loan of 15 lacs and my main focus was to pre-pay the loan as quickly as possible. I have never believed in the effectiveness of tax breaks through paying interest. Also, between MF and stocks I found that my temperament was more suited to stock investing, where I could be in control of things to a much greater extent. By 2005 We had achieved both the objectives of paying off the housing loan as well as building up the stock portfolio to a decent value. So while we continued to invest in stocks, there was some bandwidth available to start putting money into MF again.

The investment landscape had changed quite dramatically in 2005 as compared to 2001. The MF industry was booming, newer categories of funds had sprung up and every month there would be several NFO lined up. By that time I had got a regular agent and also had an ICICI Direct account which made buying rather easy. Both my wife and I bought into MF heavily during this period, both in terms of value and number of schemes. A lot of these were through NFO and all of these were one time purchases. Many of these have done reasonably well while some have not. We stopped this after about a year and sold off a few of the MF that we had bought through the NFO at fairly good gains. I do not have data on all of these investments but one fund from ICICI ( Exports & other services ) has an XIRR of 17 %. The main reason we stopped was our need to put more money into stocks, realizing that the markets were poised for growth.

We did build up a pretty good stock portfolio which went through the roof in 2007 and then crashed completely in 2008. This gave us time to reflect and we could see some merits in MF investments, even though these schemes had also been beaten down substantially. We organized our finances in 2008 and started investing in MF through SIP. My wife and I had separate portfolios and we chose MF from different categories. Our experiences in the stock markets had taught us that we needed to cover the market well for optimal returns as well as hedging the risks. Over the last 7 years we have been investing regularly in these two portfolios, with some changes in funds. For example, I stopped investing in HDFC Top 200 after 3 years as I realized that the returns from it were not commensurate with what the markets were potentially offering.

From 2013 end, when I got serious about getting out of regular corporate life and doing  something else, I have consolidated our portfolios to invest in 7 funds. The tenure of the current SIP will be over by this year and thereafter I plan to keep investing in the same funds but with a modified SIP approach that I wrote about earlier.I have also specifically invested in the ICICI Value fund series, mainly with an objective of earning some dividend income to boost my passive income stream.

While my experiences with MF has been largely good, I find it much more interesting and also rewarding to invest in stocks. For most investors, my advice will be to be in both, with a starting off in MF. A passive investor will find it easier to invest through MF and he should stick to it.

In my next post I will cover about my current MF portfolio and why I am investing in it.

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