TLDR;
This video features a conversation with market expert Vijay Mantri, offering insights on building a mutual fund portfolio for the long term. He suggests allocating funds to thematic funds, understanding the difference between thematic and sectoral funds, and considering factors beyond past returns when entering or exiting a fund. He also touches upon the ideal number of mutual funds in a portfolio, the flexi-cap vs. multi-cap debate, and the importance of considering Nifty 500 over Nifty 50.
- Focus on thematic funds for long-term growth.
- Differentiate between thematic and sectoral funds.
- Consider factors beyond past returns for fund entry/exit.
- Nifty 500 is better index than Nifty 50.
Introduction [0:00]
The video introduces Vijay Mantri, a market expert with over 30 years of experience, who will share his insights on building a mutual fund portfolio for 2040, the significance of thematic mutual funds, the distinction between sectoral and thematic funds, and strategies for exiting mutual funds.
How should one build their Mutual Fund Portfolio? [1:40]
Vijay Mantri suggests that instead of focusing solely on flexi-cap or multi-cap funds, investors should consider thematic funds for building a mutual fund portfolio aimed at 2040. Thematic funds offer diversification across 50 to 100 stocks with different revenue pools. He recommends identifying fund houses with a good track record and processes, and allocating 20-25% of the portfolio to thematic funds, with the remainder split between small/mid-cap and flexi-cap funds. The allocation should also depend on the client's risk appetite and the current market conditions, favoring large-cap or flexi-cap funds initially before transitioning to small-cap funds when the risk is lower.
Difference between thematic and sectoral mutual funds [5:25]
Thematic and sectoral funds are different. Sectoral funds, such as those focused on railways, defense, or infrastructure, have a limited number of stocks with identical revenue pools, offering less diversification. In contrast, thematic funds, like manufacturing or energy, have a larger number of stocks with different business models, providing better diversification and potentially negative correlation between businesses. Consumption is a theme that includes various sectors beyond FMCG, such as alcohol, healthcare, travel, and building materials.
How to decide when to enter or exit a fund? [13:00]
When considering investing in any fund, including thematic funds, avoid those with high returns in the immediate past (1-3 years). Instead, examine themes that are currently facing challenges. When selecting a theme, choose one that is not performing well and is viewed negatively by others. To determine whether to switch funds, compare the current performance of a fund with a 12% return to a fund with a 16% return, and assess their positions two to three years prior.
How many mutual funds should one have in their portfolio? [15:50]
While theoretically four to five mutual funds may be sufficient, it is human nature to seek variety. It is difficult to manage a client's portfolio with only four or five funds due to the emotional aspect of investing.
Which one is better? Flexi cap or multi cap? [17:28]
For higher returns, multi-cap funds are preferable, while flexi-cap funds offer better risk control. Flexi-cap funds have become very large, leading fund managers to allocate 65-80% of their portfolios to large-cap stocks for risk and liquidity management. If you can tolerate volatility, multi-cap funds are a better choice; if not, flexi-cap funds are more suitable.
Do you suggest Smart Beta Mutual Funds? [20:30]
Smart beta mutual funds are not recommended because they focus on science (quantitative factors) rather than art (qualitative judgment) in investing, creating an imbalance. It's challenging to pick the right beta fund, and winners rotate frequently. Back-testing results should not be relied upon due to impact costs, brokerages, and real-time buying and selling factors. Participating in the market impacts the market itself, which is not captured in back-testing results.
Nifty 50 or Nifty 500? Which is the better Nifty? [23:30]
Nifty 500 is better index than Nifty 50. Nifty50 is the worst-performing indices in India due to its high concentration in BFSI (banks), which doesn't accurately represent the Indian economy. Many sectors are not included in Nifty50, and the index is constructed on a free float basis, giving disproportionate weightage to certain stocks. India offers a wide variety of stocks compared to other markets.
When to switch Mutual Funds? [28:29]
People switch mutual funds based on returns, but it's important to look at where the funds were standing two to three years back. Also, assess the underlying portfolio and stocks to determine if you would like to own or disown them based on their earning potential. Be selective about the schemes you choose, allocating money to the top-performing AMCs and staying invested for the long term. Avoid switching too much, as it may result in capital gains tax and there's no guarantee that the new scheme will outperform the old one.
Vijai Mantri's Investing Mistakes [31:30]
One mistake was lending to friends and relatives. To address this, an investment committee was formed at home, consisting of his wife and two adult kids, to make unanimous decisions on lending money. Another mistake was buying a second house with the intention of providing for his sons, but it didn't turn out well. Investment decisions should be bounced off others, including investment advisors and people who disagree with you.
Rapid Fire [37:30]
- The best mutual fund manager keeps changing.
- Anyone with patience is a good investor.
- The biggest secret of the equity market is that it is the most predictable asset category due to earnings.
- Nifty by 2040 could be between 175,000 to 200,000 level.
- Market rises are more scary than market falls.
- Couples should spend at least half an hour each week discussing their current earnings, savings, and investment decisions.
- Children should be involved in financial discussions and small money games from the time they finish school and go to college.
- If dead people were allowed, he would like to have dinner with Adi Shankra G, Mahana Prattab, Chakraadi, Yaji Maharaj, Sadhar Patel and Major Dhanchan.
- If time and money were not a limitation, he would go to national parks anywhere in India for a holiday.