3 BEST Mutual Funds for Salaried People

Summary

This video script offers a systematic approach to selecting mutual funds in India, emphasizing the complexity due to over 1500 options across 40 categories. The speaker introduces an Excel spreadsheet tool to filter funds based on performance, expense ratio, and risk, cautioning against relying solely on past performance. They also share insights on mutual fund basics, types, and their personal strategy, highlighting three funds for consideration while stressing the importance of investor due diligence.

Takeaways

• 📊 The past performance of mutual funds is not a reliable indicator of future performance due to the variable nature of market sectors and fund management.
• 🤔 Investors should be cautious when selecting mutual funds, as the process has become as complex as picking individual stocks, with approximately 1500 funds divided into around 40 categories in India.
• 📈 The speaker provides an Excel spreadsheet tool to help viewers filter and select mutual funds based on various parameters and their own investment style.
• 💼 The video is sponsored by the speaker's company, Wisdom Hatch, which offers investment-related courses.
• 📘 The speaker discloses their personal investment style, which leans towards direct equity purchase rather than traditional mutual funds, emphasizing index investing as their mutual fund strategy.
• 🏦 The difference between a stock and a mutual fund is explained, with stocks representing direct ownership in a company and mutual funds being a diversified collection of assets.
• 📋 The importance of understanding mutual fund terms such as 'direct plan' versus 'growth plan' is highlighted, with a recommendation to opt for the direct plan due to lower commissions.
• ⏳ Mutual funds have a specified duration and investment horizon, which investors should consider to align with their financial goals and market conditions.
• 📊 The speaker outlines the types of mutual funds, including equity-based, debt, hybrid, sectoral, and others, each with different risk and return profiles.
• 💰 The video discusses the significance of the expense ratio in mutual funds, which is the fee charged by the fund manager, and how it can impact returns.
• 📉 The script warns against relying solely on historical returns when choosing a mutual fund, emphasizing the need for ongoing research and analysis of a fund's performance and management.

Q & A

What is the main purpose of the video?

The main purpose of the video is to guide viewers on how to systematically pick mutual funds using an Excel spreadsheet, which includes built-in dynamic systems for filtering based on various indicators.

Why is the speaker cautioning against relying solely on past performance of mutual funds?

The speaker cautions against this because there is a very small correlation between past performance and future performance of a mutual fund, emphasizing that past success is not a guarantee of future results.

What is the significance of the Excel spreadsheet mentioned in the video?

The Excel spreadsheet is significant as it allows viewers to filter mutual funds based on their investment style and preferences, making the process of selecting mutual funds more systematic and less confusing.

What is the difference between a stock and a mutual fund as explained in the video?

A stock represents direct ownership in a company, whereas a mutual fund is a collection of different assets, providing ownership in all the assets that are part of that fund, managed by a mutual fund manager.

Why should one prefer the direct plan over the growth plan of a mutual fund?

The direct plan is preferred because it generally has lower commissions compared to the growth plan, which has higher fees due to the inclusion of commissions.

What is the importance of considering the duration of a mutual fund when investing?

The duration of a mutual fund is important as it indicates the time horizon for which the fund is designed. Investors should align their investment time frame with the fund's duration to avoid timing the market, which is a futile exercise.

What is an expense ratio in the context of mutual funds?

The expense ratio is the amount of money charged by the mutual fund manager to manage the fund. It is expressed as a percentage of the assets under management and is deducted annually.

Why does the speaker mention that sectoral funds can be risky?

Sectoral funds can be risky because they invest in specific sectors, which can perform very well when the sector is on an upswing but can also tank significantly if the sector faces downturns.

What is the speaker's personal investment style, and how does it differ from traditional mutual fund investing?

The speaker's personal investment style involves mostly direct equity purchase, with only a small portion, if any, invested in mutual funds through index investing. This differs from traditional mutual fund investing, which typically involves actively managed funds with higher expense ratios.

What are the key points the speaker suggests to consider when analyzing a mutual fund's performance?

The key points to consider when analyzing a mutual fund's performance include the fund's historical returns (one-year, three-year, five-year), expense ratio, risk category, and the fund's holdings and their diversification.

What is the role of beta in understanding the risk associated with a mutual fund?

Beta measures the volatility or systematic risk of a mutual fund in comparison to the market as a whole. A fund with a higher beta is considered riskier because it is more sensitive to market movements.

What are the three mutual funds that the speaker considers to be good and why?

The three mutual funds considered good by the speaker are Parag Parikh Flexi Cap Fund for its international diversification and balanced portfolio, Access Midcap Fund for its potential in a recovering mid and small-cap market, and SBI Small Cap Fund for its consistent outperformance over various time periods. However, these are not investment recommendations but examples for educational purposes.