Why Your SIP Returns Look So Low | DSP MF CEO Kalpen Parekh

Summary

DSP Mutual Fund MD & CEO Kalpen Parekh argues that SIP returns can look low because investors often compare their recent experience with funds’ past returns—returns that may have been earned by investors who bought earlier. His central message is that investing is a long-term, probabilistic process: asset quality, purchase price, and time horizon all matter, while chasing recent winners can lead to poor outcomes.

Investment approach and portfolio construction

• Prefer a manageable portfolio: Parekh says four to five mutual fund schemes are generally enough for most investors. Owning 25–30 funds can create overlap: with dozens of stocks in each fund, an investor may effectively own much of the market. A Nifty 500 index fund may serve that broad-market role more simply.
• Use asset allocation and rebalance: He describes his portfolio as roughly 65% growth assets/equities and 35% defensive assets, including debt and gold. He would normally prefer an 80/20 mix, was around 55/45 two years earlier, and has increased equity exposure as prices have corrected. He says the defensive allocation gives him assets to rebalance into equities when they fall.
• His equity allocation: He describes the equity portion as approximately 40% Indian stocks and 25% global stocks. He says about 90–95% of his portfolio is held through mutual funds.
• Invest according to your risk tolerance: Age alone does not determine the right allocation. An investor who would panic if a ₹10 lakh portfolio fell to ₹8 lakh may not be suited to an all-equity portfolio; someone who could tolerate the decline and invest more may be comfortable with higher equity exposure.
• Do not imitate a portfolio mechanically: Allocation should reflect both personal risk appetite and the current risk and valuation of the asset class.

SIPs, lump sums, and market timing

Parekh’s general framework is:

• Invest through SIPs when income arrives monthly and/or valuations are relatively expensive.
• Consider lump-sum investing when prices are unusually cheap and the investor has a long horizon.
• In uncertain or middle-of-the-cycle conditions, he favours a combination of SIPs and a multi-asset fund.

For a ₹1 lakh bonus that is not needed for about 10 years, he suggests a flexi-cap fund as an example, including one with Indian and global stocks.

He says that at expensive market peaks, lump-sum returns can be poor for several years. He cites market peaks around 2000, 2008, and 2024, each at roughly a 25 P/E, and says lump-sum investments at such peaks have sometimes produced three to four years of zero returns.

As an illustration, he says the market’s point-to-point return from 2008 to 2014 was zero: ₹100 fell to ₹50 and later recovered to ₹100. A monthly SIP over that six-year period—72 instalments—would have bought more units at lower prices and, in his example, earned about 8% CAGR.

For investors with a 10–15-year horizon, he recommends focusing on accumulating units during the early years rather than being discouraged by a flat or falling NAV.

Gold and multi-asset investing

• Parekh says gold and silver were slightly above fair value at the time of the interview, so he would continue investing gradually rather than make a large lump-sum purchase.
• He notes that gold has no cash flow, unlike company earnings and dividends or bond interest, but may retain value when currencies are diluted by money creation. He also points to gold’s limited supply.
• He says that over five-year periods, gold outperformed stocks about 35% of the time, while stocks did so about 65% of the time—particularly for Indian investors, according to his account. He cautions that historical comparisons can be affected by the chosen start and end dates.
• His suggested portfolio allocation to gold is around 10%, potentially rising to 15% if prices fall substantially. He cautions that gold can also have long periods of weak returns, including periods of around a decade.
• He invests monthly in DSP Multi Asset Fund, which he says provides exposure to Indian and global equities, bonds, gold, and silver. He says the fund has a minimum 10% gold allocation and that, when gold and silver were cheaper two to three years earlier, their combined allocation in the fund reached 22%.

What drives market returns

• A country’s GDP growth does not automatically translate into stock-market returns. Parekh contrasts China’s economic growth with its weak market returns, and says the US produced the strongest returns among the US, India, and China over the preceding 15 years, while China produced the weakest. He also says China’s 20-year market return was zero.
• In his view, companies need to convert investment into cash flows and shareholder returns. Growth that consumes capital without producing adequate profits or distributions may not benefit shareholders.
• He highlights return on capital, profitability, cash-flow generation, and share buybacks as important drivers. He argues that companies with high returns on capital can do well, but investors can still get poor returns if they overpay.
• He gives Microsoft as an example of a high-quality company that reportedly delivered roughly zero returns from 2000 to 2014 because its starting valuation was high.
• He says investors should judge businesses—not simply countries—and favour good businesses bought at reasonable prices. He prefers funds that can invest across geographies rather than being tied to one country.
• He notes that the top 10 US companies are global businesses, and says some have used profits to buy back shares, supporting per-share earnings growth.

Selecting and monitoring funds

Parekh’s suggested framework is to assess the investment, the price, and the person managing the fund:

• Choose a sound asset class and businesses with durable economics.
• Avoid paying excessive valuations; reduce or pause new investment when an asset class is significantly above fair value.
• Give equity investments a long horizon—generally at least 10 years—and expect declines and periods of sideways markets along the way.
• Assess fund managers for a clear, consistent process, discipline, honest communication about risks, and alignment with investors (“skin in the game”).
• Do not treat short-term outperformance as proof of skill. He says a fund manager’s ability may take years to assess and that a minimum five-year period is useful.
• For active funds, he suggests examining five-year rolling returns versus the benchmark. A benchmark-beating rate of around 60–70% is acceptable to him; a rate below 50% would concern him. He notes that even strong investors can underperform in some periods.
• Do not sell solely because a fund has underperformed for one year—or automatically after a few difficult years—if the manager’s process remains sound. A style can be out of favour for three to five years.
• If a manager leaves, assess whether the fund house and successor will maintain a credible process; do not sell solely on the first announcement of a change.
• Do not switch into another fund merely because its recent return is higher. Understand the funds’ underlying holdings, valuations, and return drivers.

When to sell and investor behaviour

• Sell when money is needed, when an asset class appears excessively overvalued or “drunk,” or when the original investment thesis or fund process has materially broken down.
• He gives an example of redeeming from investments with strong returns to fund a house purchase, and describes shifting some gold exposure back toward equities as markets corrected.
• He warns against relying on recent performance rankings: funds can move from the top group to the bottom and later recover, encouraging investors to sell low and buy high.
• He criticizes finance-app features such as quick login and easy transactions for encouraging frequent portfolio checking and trading. His view: compounding benefits from patience and sometimes from doing nothing.

Funds, fees, and fund size

• Parekh describes mutual funds as a way to access assets ranging from overnight funds and equities to commodities and REITs, with cost efficiency, transparency, and tax efficiency.
• He says India’s SEBI rules use “telescopic pricing,” under which a fund’s costs can decline as its size grows. He gives an example of a fee falling from 2 to 1.25 as a fund grows, though the subtitle’s units are unclear.
• He says the relationship between fund size and performance is weak. A larger fund may sometimes act as a “guard rail,” because it has to trade gradually rather than wait for exact price extremes.
• He says mutual funds are broadly accessible to investors, while acknowledging they are not useful to people who do not have money to invest.

Assets, instruments, and examples mentioned

• Funds/schemes: DSP Multi Asset Fund, DSP Value Fund, DSP Global Equity Fund, DSP Quant Fund, DSP National Resources, a DSP BFSI/banking fund, flexi-cap funds, and global equity funds under LRS/Gift City.
• Indices and instruments: Nifty 500 index fund, SIPs, lump sums, bonds, debt funds, fixed deposits (FDs), and REITs.
• Assets and sectors: Indian and global equities, gold, silver, AI-related stocks, banks, engineering, cables and wires, semiconductors, defence, capital goods, and industrials.
• Company examples: Amazon, Apple, Microsoft, and SK Hynix.

Key cautions and disclosures

• Past performance is not a reliable guide to future performance; high recent returns may be a reason for caution rather than an automatic reason to invest more.
• Equities can fall or remain flat for extended periods, and gold can also have long stretches of weak returns.
• The video ends with the standard disclaimer: “Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.” No separate explicit “not financial advice” statement appears in the subtitles.

Presenters and sources mentioned

• Presenter/guest: Kalpen Parekh, MD & CEO of DSP Mutual Fund.
• Host/interviewer: Akash.
• Other people or sources referenced: Morgan Housel, Prashant Jain, and Johnny Harris (in a discussion of gold). The discussion also refers to DSP’s prior views on gold and silver.