Feedback : How to switch Mutual fund to Direct stock investing?

Q&A: Questions & Answers
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Dear All Friends , as shared in my earlier post i am investing 50% of funds through Direct Mutual Funds route.

In this post i will share my Mutual fund folio insights. from last 4 years i was investing MF through agents and obviously paying higher due to investing in Regular Funds through higher expense ratios.

In June’20 we realized that we need to change the same and start investing in Direct Mutual Funds.

So We liquidated all the funds and invested the complete money in 3 Mutual funds as Lumpsum Investment. So based on research and studying various online content we zeroed in following 3 funds

  1. Large Cap Fund - ICICI Pru Bluechip Fund
  2. Flexi Cap - Kotak Flexicap Fund
  3. Small Cap - SBI Small cap fund

The returns of these funds were really good averaging around 30% Till date.

However wanted to start SIP in selcted funds .so did again my study and invested in following funds as SIP and currently running on it.

  1. DSP Healthcare Fund - Considering the current COVID condition it is must have for me
  2. DSP Mid Cap & Mirae Focus fund - to play around in Mid cap theme in long term benefit
  3. Motial Oswal Nasdaq 100 fund - Considering its exposure to FAANG companies and getting exposure for International companies
  4. Parag Parekh Flexi cap fund - highly appreciated fund and looking for manifold returns.

Mutual Fund
Mutual Fund917×183 24.5 KB

I have attached the current Weightage and returns details.

The biggest question for me is to keep Mutual Fund and Stocks seperate? or gradually move towards direct stock investing with profits from selling Mutual Fund.

Request your frank opinions to balance my MF & Stocks folio.as already shared i am looking for next 10 years investment Horizon and generate wealth overt ime.

Thank you

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  1. You do not have to sell mutual funds to convert them from Regular to Direct. There are lots of services like Groww, who will do it for free for you with just a few clicks

  2. I would check the overlap between the underlying stocks of the mutual funds you hold and SIP into, if there is more than 50% overlap then there is no point investing into two finds. Might as well consolidate into one fund.

  3. If you cannot give about 20 hours every week to researching stocks and learning about investing, I would advise against direct stock portfolio. For 99% people index investing is the best option. There is a reason why majority of people cannot beat an index in the long term and that majority includes many active fund managers as well.

  4. You can have a few stocks that you really like and want to invest in that are maybe not part of the underlying stocks in the Mutual fund investments, that way you get some direct exposure along with MF investments (this direct exposure should be only after you have research and keep on researching the company)

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Dear @Tar ,

Thank you very much for your quick reply.

  1. Yes, was not aware about Groww app, but could transfer in SBI fund from Regular to Direct fund
  2. To avoid Overlap of stock i am investing in (Large,Flexi & Small Cap) but your feedback is appreciated. I will keep on checking the stocks invested by these funds and take some exposure in Index fund
  3. Related to stock research ,we have joined this forum recently and see good analysis & Stock ideas which we can further anlyse and take direct exposure.
    I have started monitoring on Jubilant Ingrevia , Laurus Labs and some of the stocks based on my observations from fellow members in this forum.
    Once again really appreciate your feedback.
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Hello,

My suggestion would be to invest in Direct stocks, if you have sufficient confidence and time, for understanding the business models of various companies.

One approach could be, to start with only 10% of your equity portfolio in direct stocks and 90% in mutual funds, and then slowly increase your direct stock portion over a period.

For important goals, you may stick to mutual funds, and for few relatively less important goals, you may experiement with stocks. Goals should be long term, at least > 7-8 years.

There could be other ways to do this, but my suggestion is based on my own investment journey.

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Is there any Platform for mutual funds like Valuepickr…to analyse and do the deep dive into mitual funds available under various categories?

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If you are looking at analyzing various mutual funds on your own under different categories, then you can look at https://www.valueresearchonline.com/

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I meant an interacting platform just like Valuepickr but for mutual funds.

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Hello,

I would be also interested in knowing platform similar to ValuePickr, which discusses various Mutual Funds and help us to take deep dive. If there is no such platform, then probably there is an opportunity to start it.

Web sites like Valueresearchonline are of not much use, beyond giving Quantitative numbers. They do not generally take deep dive like ValuePickr forum. It is good as a starting point, to short list 3-4 funds in each category, and then one need to take deep dive or keep reading more about those funds on various web sites of Personal Finance experts or independent SEBI registered advisors.

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Exactly and also deep dive into the fund management styles of different fund managers and their expertise and experience and history of earlier fund they managed etc.

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The deep-dive defeats the purpose of investing in MFs in the first place, because people who invest in MFs don’t have the necessity or the inclination to spend time for greater returns. They want to invest in equity but value their time more. And no matter such a dive, the decision of buying and selling is in this hands of the management, and we get to know about the buying or selling decisions, only after the transactions are done. Also, while I do know that fund managers have their own styles, they may not always stick to them, owning to different market conditions, and even if they do, we may now stay with their funds, because we might even think that their decisions, buy or sell, is wrong and that we have to move away. And if the managers consider themselves are learners, they may have changed their styles too. So such a deep-dive effort is not worth the return, because although it is relatively easy to do such a dive, even one wants to go for such a dive, then he very well may try that with stocks.

I personally think that, MFs are better for financial goals, because except for an unexpected bull market, MFs cannot give big returns now, unlike in the past. As the market matures and deepens, the past returns will not be repeated. I read comments like someone has got 20% CAGR by investing in MFs in mid 90s etc. Those days are gone. More the number of mouths, lesser the size of servings. So financial goals that come with a price tag and time limit can be achieved with proper MFs investment.

And I believe stocks are for wealth generation, yes there is a chance of wealth creation with MFs too, but the investment amount has to be large, as the CAGR can never be 25% now. Whereas with stocks, the possibilities and likely outcomes are both surprising and devastating, and there is a lot that we can do. Not that we can predict the journey of the business or a stock, but there is a lot that we can do before and after investing. Even if a stock, something like a conglomerate, which is dragged down for any reason, which does not move much, if such a thing is bought at lower prices, we can leave that to our family as our legacy too. We all have heard of such stories, someone who has bought some shares of a company, and those shares are worth crores of rupees after 40 years etc, just saying.

Then there is the discussion on index investing, not that it wins all the time, but it has started to show certain impact on actively managed funds, particularly in the large-cap space, alpha is getting harder to generate.

So, if one has time and inclination, then a lot can be done in stocks, at least learning wise. And for someone who has an expectation of 10-12% with time on their side, one can go for MF and spend time for other activities.

So, I would say MFs and stocks are two different games, although played in the same ground.

If one is really interested, one wants to know fund managers’ style, expertise etc, one can look at Value Research’s magazine called ‘Mutual Fund Insight’. Magazines from previous years are also available, one can write to them and get the old magazines, may be it will give an idea.

Had invested in active funds in the past, moved to direct equity but invest in indices.

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agree with you on almost all points…But we dont have to fo that far to see good returns by some mutual funds…Even in last 10 years, SBI Small cap has given more than 20% returns,Even Parag Parikh flexicap has given 10 yrs cagr in twenty…
The game we are playing …whether 1) stocks or 2) Mutual Funds or 3) Index funds…
In all 3 options the result whether direct stocks were better or Mutual funds were good or Index funds were superior…We will come to know only at the end, i mean after 15-20-25 years.
Now the problem is, we dont know after 20-25 years, who will come out with flying colours…But its our life, thats involved…We wont be able to do anything, if we dont get desired results , as our life would have gone and done with. If I invest in mutual funds and after 25 years, i realised that Index funds came out with flying colours, what benefit I would get by that realisation.My whole life would have got wasted anyways…So my point is…We dont know whats in store in future…so why not put one third of our corpus in each of the options…so whoever wins…atleast out one third portfolio will be on winner’s side…Very naive and simple supposition…

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That is the whole point, we don’t know. It is not possible to choose the best performing fund. The fund that is in news today may get forgotten in 2 years. That is why index investing is the option to come out of this musical chairs game.

Not that index investing will always reward better, sometimes active funds give better returns and sometimes indices give better returns. And obviously as there is no manager intervention in buying or selling the stocks, with index investing, they fall more. Hence the active management from our side, even if one invests in index funds, because as with stocks, the gains from MFs too evaporate quickly.

In my opinion MFs are best suited for financial goals. Have a number in mind, have a reasonable expectation, have a particular time limit, and one can know how much he should invest to get that number, invest after some quantitative and qualitative search, and actively manage there after. Not that the expected return will come each year, but still, there is a structure here, a method in place.

Stocks to me personally are a completely different ball game, in every aspect, be it time, research, capital, return, losses, multibaggers, capital getting wiped off etc etc.

So my personal perspective is that, they both serve different purposes and as such, they should be looked at differently. Of course, migrating from stocks to index can also happen depending upon a person’s situation.

If you are thinking about investing 1/3rd in active and index funds each, you can check freefincal.com (if you don’t know about it). The site has hundreds of articles covering both type of investments.

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Recently I read a book “Book of Value” by Anurag Sharma…and what striked me more was the insight that all over in financial world, how mathematicians and physicists have developed mathematical models and statistical models, reducing the whole investment into some maths Game or casino game. There is no place for Business acumen, management integrity, Decision making abilities of promoters , Business risks, Experience and Insights of business leader. As if all these things dont matter and what matters is just a mathematical model and statistical risk measurement, standard deviation. and some greek letters. I respect Mr. Pattu of Freefincal and i learnt many things , he is very honest and down to earth. But he dosenot have any expertise in Business evaluation and he says so. Even his stock portfolio he chooses by some quant criteria and reshuffles by the same criteria. He is a physicist and cannot and dosenot want to read any balance sheet and concalls to understand particular business.
Yes as you said, for Index Fund evaluation, he is very good as index funds also follow , quantitative criteria…
You have said, that for financial goals , we should go for MFs …then what for we invest in stocks? I was thinking , the most important goal for me is retirement planning and that can be done by stocks,…kindly elaborate.

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I would not say that such mathematical or statistical models are just academic and have no place in real investing. I think it was Munger who said that, for a person with a hammer, everything looks like a nail. I would say the opposite statement also has merit, that if you give someone a stick and a rock, a hammer can be made. My point is, it all lies in the application, the execution, some techniques or models have clear limitations, but some may have more applications than one has imagined. There really are many ways to skin the cat, if that is not true, I wouldn’t be here, I would have left the arena long time ago. But no, there is a place for me too, provided if I am open to ideas every which they come, learn, practice, adapt etc.

Another aspect is that, this is all personal finance. It is personal first and finance next. Each one’s context is different. So excluding the basic and broad guidelines that can be learnt from Freefincal, everything else has a clear context. So a choice of investing taken out of that context may appear as meaningless or academic, but they appeal to readers who are in the similar situation. Priorities are different.

I will give my personal perspective again that, a financial goal is one that comes with price tag and a deadline. It has to happen at a particular point in our life, and as it has to do with finance, inflation has to be accounted for, and a final figure has to be arrived at. There is no subjective argument here. Wealth is subjective, for someone an 8 digit number is wealth, for someone a 10 digit number is wealth. I invest in stocks for this, to create a bit of wealth, along with the notion of thinking the PF to be a house or a plot that can be given to successors. I take chances here, I learn, make mistakes, try to correct them, make no big mistake that will takes me off the market etc.

We can invest in stocks for goals, sure but I am not sure if one can be mechanical and emotionless with stocks. Say I expect 15% return from a stock PF which I intended to sell after 10 years for a goal, and if a particular stock performs well exceeding my expectations, and when the goal’s time has come, if I am in such a position that my goal will not be realized unless I sell the best performing stock, what would I do? I know that it has a very good chance of going much higher from here, and it will be foolish to sell the stock considering the low price I have paid. In other words, if because of any bias, I bring myself to not selling the stock and doing something else to realize the goal, which derails other plans. So I would like to keep financial goals and adventures separate. MFs don’t have a problem like this, and I think it does not make a person feel that he is losing ownership. So as the time progresses, and if I reach 80% of my target corpus, I would gladly sell the funds and move to debt, and the goal will be realized irrespective of the market.

I personally feel that, investing for any financial goal including retirement is relatively easy compared to reading an AR of a company. It is all about a number, that gives a guarantee to the lifestyle that one envisages to have in the future, but that number should be arrived after incorporating a lot of choices one makes up to that point, say for example a person wants to retire in the city he works, starts with a plan, a few years down the line he may want to move abroad or go back to his hometown, or the initial idea is to retire at 65, it may happen soon etc. Not to mention the post-retirement activities that one wants to participate in. So retirement planning in that sense does not come with a concrete framework, it is both quantitative and subjected to changes as time passes.

So if one is absolute regarding these aspects, then I guess, it is the matter of a number. Once we arrive at that number, then we can see if one can reach that number with MFs alone if the return required is 12%, or it demands 18% hence stocks, or even debt products if the return needed is 7%.

Math part is easy, in the sense that, it does not change with our thoughts, so once we settle down with our thoughts, we can work on math, and can see what can be done to make it come true.

And I am yet to invest for any specific goals, so I am yet to experience the kind of activity that should do or not do during the tenure of the goal, so take my advice regarding this one aspect with a lot of salt.

On a side note, retirement planning is the primary goal for Freefincal’s professor. Your situation may be in complete contrast with him, but the goal is the same, retirement planning. So if you go through the posts again with this in mind, perhaps you can see another angle in those posts.

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