LUMPSUM in Mutual Funds NOW OR Wait For CORRECTION? | Where To Invest Lumpsum in 2024? Rahul Jain

Summary

In this video, the speaker, Rahul Jen, offers a comprehensive guide for investors considering lump sum investments in mutual funds. He addresses whether to wait for a market correction or invest now, evaluates the risk levels in large cap, midcap, and small cap funds, and provides a framework for allocating funds across these categories based on investment horizon and risk appetite. Rahul also introduces the concept of systematic transfer plans (STPs) to mitigate investment risks and shares a method for shortlisting mutual funds using a free online tool, emphasizing the importance of considering factors like past returns, volatility, Sharpe ratio, and fund managers' expertise.

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Q & A

What are the four critical points discussed in the video regarding lump sum investments in mutual funds?

The four critical points discussed are: 1) Whether to wait for a market correction before investing lump sum or not, 2) Analyzing large cap, midcap, and small cap spaces to determine where the valuation risk lies, 3) Allocating the lump sum amount across small cap, midcap, and large cap funds, and 4) A method for shortlisting mutual funds based on a framework provided by the speaker.

Why might waiting for a market correction not be the best strategy according to the video?

The video suggests that waiting for a market correction might not be the best strategy because despite predictions of overvaluation and potential corrections, markets like the Nifty have continued to rise, and any corrections have not been sustainable over a longer period of time.

What is the risk associated with lump sum investing in the context of the video?

The risk associated with lump sum investing, as mentioned in the video, is the potential for a short-term market correction that could lead to significant losses in a short period, causing investors to lose faith and exit the market, possibly at a loss.

What is a systematic transfer plan (STP) and how does it help in mitigating the risks of lump sum investing?

A systematic transfer plan (STP) is a strategy where an investor parks their lump sum in a debt mutual fund and then sets up an automatic daily transfer of a fixed amount into an equity mutual fund. This averages the cost of buying and reduces the impact of market volatility, thus mitigating the risks associated with lump sum investing.

How does the video suggest allocating a lump sum of 5 lakh rupees among different market capitalization funds?

The video suggests that the allocation depends on the investor's risk appetite and investment horizon. For conservative investors with a time horizon of over 3 years, the allocation could be 40% large cap, 40% flexi cap, 10% midcap, and 10% small cap. For balanced investors, it could be 30% large cap, 30% flexi cap, 20% midcap, and 20% small cap. Aggressive investors might allocate more towards midcap and small cap funds.

What are the valuation indicators used in the video to analyze the risk in different market capitalization segments?

The video uses Price-to-Earnings (PE) and Price-to-Book (PB) ratios as valuation indicators to analyze the risk in large cap, midcap, and small cap segments. It suggests that midcap stocks appear to be the most overvalued based on these indicators.

What is the importance of considering the fund manager's expertise when selecting mutual funds for lump sum investments?

The video emphasizes the importance of understanding the fund manager's expertise, experience, and investing style, as these factors can significantly impact the performance of the mutual fund and hence the investor's returns.

What is the role of total expense ratio (TER) in the selection of mutual funds as discussed in the video?

The video highlights that the total expense ratio (TER) is crucial in the selection process because a lower TER means lower costs, which can save investors money in the long run and enhance returns.

How does the video recommend shortlisting mutual funds for lump sum investments?

The video recommends using a free tool like tickertape.in to screen mutual funds based on parameters such as 3-year average annual rolling return, Sharpe ratio, volatility, fund manager's expertise, and total expense ratio. It advises investors to score these parameters based on their risk appetite to shortlist suitable mutual funds.

What is the significance of the Sharpe ratio in mutual fund selection as per the video?

The Sharpe ratio is significant because it measures the risk-adjusted return of a mutual fund, indicating how much return an investor is receiving for the risk they are taking. A higher Sharpe ratio means better returns for the same level of risk.