I stopped investing in Mutual Funds in 2025 (here is why) | Akshat Shrivastava

Summary

The video discusses the shifting nature of the stock market, particularly post-2020, highlighting increased volatility and its impact on investment strategies. It emphasizes the need to move away from the traditional 'buy and hold' approach and instead rotate capital actively. The speaker critiques mutual funds, especially large-cap equity ones, and suggests that ETFs, index funds, and sector-based funds offer better control and lower commissions. The importance of understanding the basics of investing and the concept of rotating capital is stressed. A course offering is also mentioned for those interested in learning more.

Takeaways

• 😀 Volatility in the market has significantly increased since 2020, affecting both Indian and global markets, especially due to events like COVID-19 and the Trump era.
• 😀 Traditional buy-and-hold strategies may no longer be effective due to the increased volatility; instead, investors must learn to rotate capital.
• 😀 The ability to trade effectively in volatile markets is crucial. Stocks like Microsoft can experience significant volatility, which can be exploited by short-term trading.
• 😀 Mutual funds often rotate capital internally, but investors need to make their own decisions about when to exit to avoid long periods of poor returns.
• 😀 Periods of sideways market action (like 2021-2023) can result in zero or negative returns, even if the mutual fund's long-term performance looks promising.
• 😀 SIP (Systematic Investment Plans) can be detrimental in flat or declining markets, as they can lead to suboptimal investment performance over time.
• 😀 Not all mutual funds are bad, but large-cap equity funds are often less suited to current market conditions due to lower growth potential in volatile periods.
• 😀 ETFs (Exchange-Traded Funds) offer a better option, especially if you’re buying during market dips, as they provide control over your investment with lower commissions.
• 😀 Wealthy investors prefer direct investments in stocks or real estate to have more control over their capital and ability to exit when needed.
• 😀 Understanding the basics of investing is essential; without this knowledge, neither mutual funds nor direct stock picking will be effective strategies for beginners.
• 😀 If you don’t plan on actively managing your investments or rotating capital, safer assets like land or gold might be a better choice for you.

Q & A

Why has market volatility increased in recent years?

Market volatility has increased significantly post-2020, particularly due to the COVID-19 pandemic and the political and economic changes during the Trump era. This shift has impacted both Indian and global markets, leading to higher unpredictability in stock prices and returns.

How has the approach to investing changed over time?

Previously, the 'buy and hold' strategy was common, where investors would buy stocks or businesses and hold them for long periods (15-20 years). However, due to increased market volatility, this strategy has become less effective. The new focus is on 'rotating capital,' where investors actively buy and sell based on market conditions to capitalize on price movements.

What does 'rotating capital' mean in the context of investing?

Rotating capital refers to actively moving money in and out of investments, such as buying low and selling high, to take advantage of market volatility. This strategy aims to generate better returns by responding to market conditions rather than holding onto investments passively.

Why do mutual funds perform differently from individual stock investments?

Mutual funds typically manage a diversified portfolio and do their own internal buying and selling, which can result in growth over time. However, individual investors do not have control over these internal decisions and may not make the right moves themselves, leading to less-than-optimal returns, especially during sideways market periods.

How can mutual fund investors get caught in a negative cycle?

Investors can get caught in a negative cycle if they continue to invest in mutual funds during market downturns or sideways consolidation phases, such as between 2021 and 2023. This can result in zero or negative returns, even though the mutual fund itself may perform well over the long term.

Why do many investors feel disappointed with mutual funds' long-term returns?

Many investors feel disappointed because mutual funds advertise a high Compound Annual Growth Rate (CAGR) over the long term, but after accounting for commissions and the timing of individual investments, the returns are often much lower, leading to a gap between advertised performance and actual outcomes.

Are all mutual funds bad for investors?

Not all mutual funds are bad, but large-cap equity mutual funds tend to be less effective for investors looking for high returns. The speaker suggests that ETFs and index funds are generally better options for those seeking lower fees and more control over their investments.

What are the advantages of ETFs compared to traditional mutual funds?

ETFs (Exchange-Traded Funds) offer lower fees, greater control over investment choices, and the ability to track specific indices like Nifty50 or sector-focused ETFs. This makes them a better choice for investors who want flexibility and cost-effectiveness.

What is the importance of understanding the basics of investing?

Understanding the basics of investing is crucial for anyone looking to participate in the stock market. Without this knowledge, investors are likely to make poor decisions, whether they are using mutual funds or attempting to pick stocks directly. Basic investing knowledge allows investors to better navigate market volatility and increase their chances of success.

What should a beginner do if they are unsure about investing in the stock market?

If a beginner is unsure about investing in the stock market, they should consider safer alternatives like land or gold. The speaker suggests that for those who want to learn more, taking a basic investing course could help them understand key concepts and build the necessary skills to invest confidently.