5 Simple Mutual Funds you should buy NOW!

so that's one part of the equation now this does not mean that you just go and start buying like small cap and Medicap at whatever situation no small caps and midi caps have the history of giving very good returns once large cap has started to perform and we are in that bull market zone right so please hear this out this will actually help you make a lot of money hi everyone welcome to today's video now many of you might be investing in mutual funds and by investing in mutual funds you might be losing a lot of money why exactly for that let us begin the story by understanding this very very important graphic so what this graphic simply shows you is that this shows the one year three year and five year return of different type of mutual funds for example large cap flexi cap small cap midi Cap all this stuff compared to its Benchmark and what you would notice is something very very interesting and let me pick the case study of large gaps here so for example you would see that on a one year Horizon only 31 percent of large cap funds beat the index which is Nifty 50. now if you consider the three-year returns then only 32 percent of large cap funds beat the index if you pick the five year story then the issue becomes that only 11.11 percent of large cap funds beat the index what is the lesson here the lesson is that if you are actually putting in crazy amount of money in a large cap actively managed funds you are actually losing a lot of money I cannot tell you exactly how much money it depends on the quantum the number of years you do Investing For but let's pick a very basic example that your age is around 30 right now and you will be investing for at least 30 40 more years in the market then even if you pick very conservative estimates you will be losing lacks on this video I am going to help you understand how to avoid this situation I will explain the entire Topic in very easy to understand language and if by the end of the video you feel know what this video is not going to help me save some money dislike this video but for that I'm being like it so that these type of videos reach out to more people this video has been brought to you by taxpayee.com which is an excellent tax filing platform thousands of taxpayers came forward to Avail their massive 40 discount which was announced a few days back now this discount has been reduced to 35 now and is applicable till 15th of June you are probably not thinking about filing your taxes till July but I would encourage all of you to do your tax planning well ahead in time and do decide to file your taxes as early as you can the biggest Advantage there would be that it would allow in terms of your tax planning so do check the links in the description and comment box for that special discount so back to the main video and there are five or six important points that I am going to discuss please make notes very very important points so first and foremost let us discuss the point that who is mutual fund right for now mutual fund is great for investors who fall in one of these three categories so first and foremost if you are absolutely new to the stock market you don't know much you don't know anything and you're thinking yeah so in that capacity mutual fund investing is very good for you please go and invest your money in mutual funds what type I will tell you in a minute but first and foremost please understand a very critical point and this brings us to the second point that if you are looking to make more than 10 to 12 percent kagger on your portfolio mutual fund investing is unlikely to beat this especially when you are picking Blue Chip stocks now why is that the case well the reason there is very simple and I will show you the data Also let's see nifty 50 which is the collection of top 50 stocks in India if you consider the last 20 years cargo of it it will come out to be roughly 12.5 percent and again go back to that initial chart that I had shown you we can categorically conclude that most of the actively managed mutual funds do not beat their Benchmark index so that is the reason why I am saying that you know what if you are going why are the mutual fund route it is very unlikely that you are going to beat this 10 12 gather now you might be of the view that okay this 10 12 is a lot of money why do I need to even beat all these returns so from that perspective it might be fine so then you might fit into that category where doing mutual fund investing might be a very sensible decision for you third category of investors would be that you're just too busy you just don't have the time you are not able to take out any time to monitor anything you don't even want to learn about investing all that stuff you can't do direct stock picking so therefore mutual fund investing becomes a good route for you so under all these three reasons it might be sensible for you to pick mutual funds now you might say that okay what's the point of even watching the video it's okay so let me tell you one important data point which I keep on sharing on my videos over and over again just to help you understand that what is the difference between making 12 kagger and 16 kagger so this is an example that I love to use and I will put some Snippets here as I speak so basically if you consider this that you are investing 20 25 000 rupee per month and you do that for a period of 30 years now if your money is growing at a kagger of 12 then your total portfolio comes out to be roughly eight to nine crores now if you just change one simple thing on this entire analysis which is that move the return from 12 to 16 so again we keep all the parameters same then how much the difference would be well it would be roughly 22.5 crores so if you consider the difference it comes out to be almost 2.5 times your portfolio and that is the difference in being wealthy and ultra wealthy so unless you figure out a way to make 16 returns from your Investments at least as per current circumstances it is unlikely that you will be able to move into that ultra wealthy category just through investment so that is the simple Point simple math that I wanted to outline now you might have a series of questions for me that okay when we are giving our money to mutual fund managers they are export words so how is it that they are only giving us 10 and we ourselves can make 16 is that even possible is that not possible you will understand all the Dynamics now I will explain Point by point but ask my students ask my Community member students they will all tell you that they are sitting on very healthy profits for the last one year when the markets have been low I have depicted this over and over again if you don't trust me I will show my mutual fund portfolio only to you where I've done basic index investing and I've been able to generate a very good Alpha in a sideways moving Market where majority of mutual fund managers have not even beaten FD rates so now how exactly can you do that so let me talk about the specific type of mutual funds that you should be buying and under what circumstances so the first option of buying a mutual fund that is a go-to option for majority of us is large cap mutual funds now what is the meaning of large cap large cap simply means these Blue Chip companies for example TCS IDC all these big big companies would fall under large gap or large company base so whenever we are deciding to invest our money in large cap mutual funds what we are thinking our Viewpoint of going to large cap companies would be company may we will be able to invest and that way our money will be safe this becomes like a long-term investment for us and it will be good good right so I mean that is what we will essentially think about now the problem is that again go back to that initial data point that I was trying to show you that if you are investing your money by a large cap mutual funds then number one problem is that those large cap mutual funds which are actively managed are not beating the index to begin with so if nifty 50 returns at 12 12 and half percent then the large cap mutual funds are not giving you that amount of money that's okay second key point is that there is higher expense ratio expense ratio means that the amount of money you will have to pay the mutual fund house in order to manage and invest your money you will have to pay a higher amount compared to the amount of expenses you will incur if you are investing in Index Fund so tip number one in order to optimize your returns from your mutual fund portfolio is that don't buy large cap mutual funds to begin with save on that expense ratio rather just simply buy index which could be nifty 50 or sensex so you can buy this either in ETF or exchange traded fund format or via mutual fund so for example you might be using any zero brokerage platform so just go on the mutual fund app of that particular company you can buy it in mutual fund format or directly on your xeroda account or grow account or m-stocks account whichever you use you can simply go and buy it in an ETF format so ETF trade simply like a stock so you can consider buying nifty 50 or you can buy sensex there is hardly any difference between the two so this what this would allow you to do is that this will help you save on something called as expense ratio so you are not paying file to a commission and that ends up helping you save thousands for in fact lacks of money over your entire investment Horizon depending on how much investment you are making so this is tip number one second key point is that please buy direct stocks even if you are a beginner buying Blue Chip company stocks is not something which is very headache oriented you can easily figure out whichever stocks are good for example if I ask you can you tell me the market leading companies in India what are the names that will come some of you would say the lines some of you would say ITC some of you would say Bajaj Finance some of you would say a range of other companies so see there is no problem in terms of identifying these top players right so I hope this first thing is not a problem at all in terms of identifying companies then comes the Second Step that whichever company you have identified for example let's say maruti now maruti is a market leader and you have identified it to be a blue chip company nothing wrong with that but ask yourself a question that hey is it a growth industry so for example if you do a little bit of newspaper reading and if you can even take out half an hour to read will quickly reach the conclusion you know EV industry made this is where the migration is happening conventional automobiles are getting disrupted now if this Clarity is now not there that which direction the industry is growing whether it is a growth industry or not avoid that stock so for example you could cut maruti stock this is not a selling or buying recommendation I'm just simply telling you how to analyze right if you are an absolute beginner third is that please check if the stock is available at least at some discount don't go and buy it at highest ever price a lot of growth managers and growth portfolio managers this year they have gone and invested like crazy and like crazy valuation last year they were doing it and as a result they have not been able to make any money in the market now many of you would say that okay can you tell name of two three stocks that I can potentially go and look as of today okay so go and look at dmart is it a good company or not is it available at its highest ever price right now what is the sales growth like what is the profit growth so if a company is sitting on its highest ever profit highest ever revenues and not at its highest ever price and it is a blue chip company the chances of you losing money on that company is very very less that is a simple point now many of you would be you know this is something that even mutual fund managers would know then why is it that they are unable to make money multiple reasons now think about it this way that for example you start your sip right you are giving like 10 000 Rupee to a mutual fund manager every month and you're doing this sip in large cap actively managed funds now if let's say in a bull market when the market is at an all-time high you have given this money now the mutual fund manager has to invest this money one way or the other that's point one second key point is that they can't rotate the capital very very quickly I will show you a case study also subsequently on this video you'll understand this point about rotation but rotation simply means that let's say that you and I have purchased ITC maybe you'll buy it for like 5 lakh 10 lakh 20 lakh if you're super hyper Rich maybe one crore right more than this we will not be able to buy so we can sell those stocks fairly quickly but if a mutual fund manager especially of a big mutual fund decides to buy ITC stock they might be buying it for like you know 500 600 crores so rotating that Capital that's selling it off moving to a new stock it becomes a big problem for them so therefore I continue to maintain the stand that if you are a sensible retail investor it is much easier for you to make 16 return compared to a mutual fund manager trying to make like 12 return also and that is one of the reasons why this chart plays out really really well that majority of the mutual funds are unable to beat their relative indices that is a fact that is proven by data so just to recap Point number one that in case you are investing your money in a large gap actively manage mutual funds number one don't do it in case you are doing it consider nifty 50 or if you can understand opportunities do basic analysis for example Asian paints dmart right now all these companies are sitting on their highest ever profits highest ever revenues but not highest ever price just consider buying these at an opportune time so that is a simple message that I will give you so this is about investing in large cap funds so now let's move on to Second type of fund which are called as liquid funds now many a times I get the question that actually we have some money lying around should we put it in fixed deposit or should we put it in liquid mutual funds where should we exactly Park that money which we are having right now but we are scared to invest in the market right I mean we should invest somewhere at least it gives us some return so where should we put it okay so to cut the long story short you should put this money in fixed deposits not in liquid mutual funds let me explain but this thing also depends on the market circumstances so I'll explain you this complicated Topic in two minutes about Bond investing so Point number one is that what is the meaning of liquid debt funds Now liquid debt funds are a type of our mutual fund where your money is invested into instruments whose maturity is less than 91 days now that is the technical definition but in simple terms these are highly liquid Securities these are safe these are sound government t-bills okay uh good government debt short term government debt so all these would comprise in liquid mutual funds where the maturity is 91 days now if the maturity is 91 days it means that upon 91 days right so the risk of default is very very low so these are safe instrument assets so I hope the picture so far is clear that what is the meaning of liquid debt funds now the second key concept is that you need to understand how bond prices moves so here is the mathematical equation that interest rates is inversely proportional to price of the bond for example if the interest rates are rising then what would happen is that the price of the bond will fall so this is the mathematical equation on the flip side if the interest rates are falling then price of the bond will arise so this is a good mathematical definition but see it impacts different type of bonds differently for example this entire equation holds true or more true words so to say for long term debt so long term debt means what women are for example that when it comes to liquid debt funds the maturity period is 91 days that is short term but there are long-term duration bonds also for example 10 years Disney has a bond which matures in 100 Years also so these are long-term debts now this relationship actually works better for long-term debt not short-term debt like liquid debt funds so if you are looking to invest your money in a liquid debt funds then what is the point that you must keep in mind well you must keep the point in mind is that if the interest rates are stabilizing or stagnating or they are about to fall or are falling then you should not be investing your money in a liquidate funds you should invest your money more in liquid debt funds when the interest rates are rising so right now in the market the interest rates have peaked and they are about to fall the interest rates will be cut with time so therefore right now you should not be putting a lot of money in liquid debt funds you should rather Park that money in fixed deposit if you are looking for stability so to say so I hope this point is clear that if you want to lose money then we have Park your money in liquid debt fund it will not give you the type of yield typically that it gives so yeah so not a good environment to invest in that asset so now let's speak about the third category of mutual fund which is a very popular mutual fund type it is called as debt mutual funds now debt mutual funds are basically this comprises of long-term debt also and short-term debt also now one important change that has happened on debt mutual fund is that indexation benefits in the recent budget have been withdrawn now whether you invest your money in fixed deposits or debt mutual funds there are going to be zero indexation benefits now what is the meaning of indexation benefits how is it calculated we don't need to get into all that but I will give you a simple example to understand the point so let's say that this is the year 2020 and you have put one lakh rupee in your debt mutual fund by 2023 this money has become 1.5 lakhs right now between the year 2020 and 2023 there will be inflation also inflation means increase in prices so let's say that the prices grew in these three years by five percent then another five six percent then another five seven percent so twenty percent inflation okay so basically this indexation benefit means that you would be given some Advantage here in form of inflation and this inflation will be factored into your returns and it will reflect post tax but those benefits have been taken away from debt mutual funds so therefore your fixed deposit Investments and your debt mutual fund Investments are at par whether you invest in fds whether you invest in debt mutual funds one and the same thing now that is not the only problem the second key problem that will happen in this space is so take a look at this particular graphic what you will see is the investment pattern of individuals and corporates and take a look at the corporate Investments as of March 23 how much money they are putting in debt schemes so they have already put in a lot of money in debt Now new money is unlikely to come in debt why because indexation benefits will be taken away or it has already been taken away now so they are going to invest Less in fact it is likely that this debt will be sold so whenever the debt selling will happen what would that lead to it will lead to crushing of the bond prices so from that particular point of view if you don't want to get into the complexities of it simply avoid investing crazy amount of money in debt mutual funds now comes the third and final Point regarding debt mutual funds that one of the primary reasons why people go and invest in debt mutual funds is that they need assurances in terms of the money that they will be making in the market for example one of the primary advantages of investing in FD is what that you get fixed return there is certainty of return now in the stock market can you generate certainty of returns the short answer is unfortunately no but one possible solution is that you learn more about dividend investing here is a video that I had done as to how to build a dividend income you can go and check it out it will give you more idea but to cut the long story short right now whether you like it or not that certainty of income or making money certainly from the market is becoming more and more difficult by the day this change in terms of withdrawal of indexation benefits from debt mutual funds has been one of the key triggers why it will become even more difficult to make money with certainty from the capital markets so now comes the fourth instrument that we are going to analyze and these would be small and Medicap mutual funds now does it make sense to invest in small and Medicap mutual funds the short answer is yes it makes sense though their expense ratio might be higher but from time to time there are periods when small cap and Medicap outperform the entire market so if you are invested in small and mid cap during such times you are going to make a lot of money and even paying like expense ratio there makes a little bit of sense but you need to time it right I mean it's not as if that you can keep on doing like sip on small and medical app stocks all throughout irrespective or whatever is happening in the economy year after year year after year you will lose crazy amount of money so the summary that I'm trying to present is that it makes sense to invest in small and mid caps via mutual fund route no doubt about that but you need to understand the timing bit so let me comment a little bit there so see first and foremost let us look at the overall returns of small and mid cap compared to its Benchmark so if you consider a one year period Then only 35 percent of small cap funds and 3.85 of mid cap funds Beach their respective benchmarks if you consider a three year period then this performance improves quite substantially and at a five year period small caps are like outperforming the market now why is that the case structurally speaking India is an emerging economy the rate at which the emerging economy should grow should be faster now it's a slightly more volatile asset because therefore we are emerging economy so the volatile asset growth is likely to be higher so that's one part of the equation now this does not mean that you just go and start buying like small cap and Medicap at whatever situation no small caps and medicaps have the history of giving very good returns once large cap has started to perform and we are in that bull market zone right so please hear this out this will actually help you make a lot of money so let me help you understand that more this is a chart that I have presented even in the member Community tab so I keep on having a lot of conversations about microeconomics macroeconomics whatever I'm doing in the market I present all that analysis with facts so this was one of the posts that I written there so for example what you will see is that in the periods of Bull Run for example 2003 was a bull run period here sensex gave 91 return but small cap gave almost 200 return almost two weeks right same thing happen if you go through this entire chart you will see the same Trend playing out for example 2017 was a good year since xdr small cap last four or five years have been really bad for small caps in India why because since 2018 there was re-categorization of small cap a lot of mutual funds had to sell their small cap due to regulatory changes so there was meeting in 2018 2019 2020 right so the point is that if you consider last five year performance of small cap funds those have been really bad now if we are sitting in 2023 and you're thinking yeah you know what we are close to a bull run markets haven't given any return over the last two years then now might be a great time to create your small cap portfolio I'm already doing it I am doing it via mutual funds also I am doing it via index investing also a lot of my money is going into small caps so just to help you build more confidence this is the SNP BSC 250 small cap index and what you will notice is that this debuted somewhere in 2018 2017 in fact so if you check last almost five six years return how much has the return been last six years small cap return has been less than 60 percent right and these are top 250 small cap companies in India so in last six years having like 60 which is very very low for a volatile asset and whenever the small cap run they run like anything for example this wasn't enough phase or small cap right and you can see that there was a 250 percent gain on small caps this was a bull run period right so you would have seen that between 2020 and 2021 the market started to crash somewhere around October 2021 onwards so during this time this bull run period small cap gave a lot of return so here when we are sitting at this juncture if you feel that you know what small caps are going to go up or the markets are going to go up it cannot happen that small caps do not give a run so it is very very likely almost 99 chance that small caps are going to outperform Nifty so from that perspective if you feel and if you don't know how to invest directly in small gaps and if you are not fond of investing in Nifty 250 this one index then you can consider buying some active mutual funds which are small cap based which ones I will not comment I do not have any mutual fund to push right so I mean you guys decide whichever mutual funds you like so I hope you got the perspective that if you want to make money from Mutual funds right now especially in the small cap category you need to understand the time okay so now comes the final point that many a times you would have heard here you know what if the company a mutual fund has given like crazy returns like over the last three years for example Quantum mutual fund has given like 200 percent return in money or something like this so okay now let us put our money into it see I'm not trying to criticize Quantum mutual fund or any company I'm just picking Quantum mutual fund as a case study and I'm not promoting Quant mutual fund I am in fact going to show you the negative side of it so there are two three graphics and let me help you understand and absorb data well so what you would notice is that in the year 2020 if you consider Quantum mutual fund which has been one of the multibagger funds so to say it used to give 76 return and The Benchmark used to be 32 so almost two point something times more return than the benchmark same was the case in Quant active and if you consider a contacts plan so almost like more than two times returns right this decreased by the year 2021 right here you are getting 91 return 65. this is again not 2x this is again not 2x so why is that the case that here they were able to comfortably beat The Benchmark by more than 2x here they are not able to beat The Benchmark by 2x what will happen next year and the year after that what exactly happened well what exactly happened was that the size of this mutual fund increased like anything right it used to be like this much then people saw the performance mutual fund size became this much now managing this much portfolio versus this bigger portfolio is a huge change right and it becomes a nightmarish scenario to manage such a big portfolio and making it generate like almost three times what the Benchmark returns are that is very very difficult to do and for this you need to understand a very basic concept of turnover over ratio for example if you study the different schemes that are run under the Quant fund this is for the year 2021 here what has happened is that this shows the total turnover ratio of 222 for Quant large and mid cap what this simply means is that their entire portfolio was turned 2.2 times for example they started with 100 stocks probably sold those 100 brought new 100 stocks so that's a 2.2 x almost 2.2 x turnover so this is a very high turnover right so what they were doing was that they were rotating their Capital really really well that is what allowed them to generate a lot of returns but unfortunately what happened was let's see take a look at the AUM or asset under management you will see that it used to be 486 crores then it became this then it became this now can you imagine rotating the portfolio at this scale 2.2 times the short answer is that this is going to be really really difficult again going back to that example that if you have 10 roads of ITC stock right you can pretty much sell it in one go and liquidity will be there that you will find buyers on the opposite end but if this grows to let's say 100 X or 100 times now can you sell 1000 crore of ITC in one go it might be very very difficult to do and it will definitely be almost impossible to do it for like say 200 shares so that is the reason why as mutual funds grow it become more and more difficult for them to churn out more returns this is not a problem that you face as a normal investor and that is the reason why I keep on saying that if you learn investing if you are smart if you are strategic if you know how to churn your portfolio you can easily make 16 return that is not going to be Troublesome you need to have patience you need to know the principles now this is something that I teach on my stock market course also so if you are a serious learner and if you have a decent Capital to put in the market definitely it might be worth your while to at least understand where your money is going and how you can take better control of it so from that perspective I'll quickly summarize the number one please avoid debt funds number two please avoid large cap actively managed mutual funds these do not generate very high returns you are much better off buying individual stocks number three it makes sense to buy midi caps and small caps but you need to time these really well you cannot just go and buy at any Market whatever you like because there are periods when small caps and mid caps fall quite aggressively and fourth and final point that have confidence in your ability you are the one who would care the most about your money not the mutual fund managers I always keep on getting a lot of heat that you know what mutual fund managers are experts they beat this they beat that okay and by showing you this data I will close off the chapter as a next video I would recommend that you please go and watch How to Build Your dividend income that will give you stability in the market so with that perspective in mind start learning more about stock market and I wish you all the rest and I will see you soon

Channel: Akshat Shrivastava

Views: 359,226

Keywords: akshat shrivastava, cases over coffee, wisdom hatch, wisdom hatch courses, stock market courses, akshat shrivastava courses, stock analysis, mutual funds, mutual funds in india, quants mutual fund, active mutual fund, how to invest in mutual funds, nifty 50 index investing, small cap mutual funds, investing for beginners, which mutual funds to choose, large cap funds, stocks to invest in, how to choose stocks, reliance, itc, hindustan unilever

Id: DAu_SpfKe70

Length: 28min 45sec (1725 seconds)

Published: Thu Jun 08 2023