We as investors have now got accustomed to Mutual Funds and SIPs thanks to the growing popularity of SIPs and awareness and publicity campaigns by AMFI under its banner ‘Mutual funds sahi hai’.

There are over 2500 mutual funds schemes in India across various categories and fund houses. With the growing popularity, the Assets Under Management (AUM) of the Mutual Fund industry has grown substantially from Rs 6.65 trillion as on November 2010 to Rs 30.01 trillion as of November 2020. 

Also the number of schemes has grown and newer schemes have generally outperformed the older schemes. Also SEBI has allowed investment by mutual fund schemes in international equities.

Another very interesting and popular avenue for investments are Exchange Traded Funds (ETF). Lately there is growing preference for this avenue. The Nifty 50 and other indexes like Midcap 100 Midcap 150 Nifty Junior are rebalanced frequently to weed out underperformers and include the market outperformers subject to appropriate filtering criteria for each index. This is also in line with the global trend where increasingly institutional funds from developed economies are looking to invest in benchmark Indices of respective countries instaed of cherry picking stocks. This has led to healthy competition among indices of various countries as they try to outperform one another based on index performance.

For an individual investor, ETF investing makes sense as the Index performance has been more or less been better than an average mutual fund scheme. Further considering the lower costs associated with ETF (differential of almost 2% annually).

Based on past performance only about 10-20% of the funds beat the Index and therefore it makes sense to invest in ETF as the costs involved are much lower.  Also the optional available in the ETF basket in India is very wide and one can invest in Nifty 50, Bank Nifty, Sensex, CPSE index, Nifty Midcap, NIFTY IT index, Nasdaq 100, Hang Seng (Hong Kong index). There are also a number of Gold ETFs that track the Gold prices and are very liquid. As these are exchange traded one needs a Demat account for investing in these. The performance closely mirrors the benchmark index and most schemes are fairly liquid.  

As of December 31, 2020 the 5 year Total Returns Index (TRI) for Nifty 50 is 13.38%. TRI also includes the dividend paid by Nifty companies over the period, in addition to CAGR of Nifty 50 and is therefore a better gauge to measure total returns. SEBI has rightly made it mandatory for Mutual Funds to benchmark performance with TRI instead of just NIFTY CAGR.

Over this similar 5-year period only 3 MF schemes in Large Cap universe have outperformed this NIFTY TRI of a total of 35 major large cap schemes tracked by us. Further among the Large and Mid-Cap funds only 1 fund has outperformed the Nifty TRI of total of 26 schemes tracked by us. The above trend holds for different time periods like 2 year and 3 years as well.

Additionally, there are plenty of Gold ETFs which are quite liquid and closely track the Gold prices. Investors can choose these Gold ETF as an efficient way of investing in the Gold with the convenience of holding gold in digital form as well as

The above data clearly points towards advantages of ETF investing considering lower costs combined with better than average returns by actively managed mutual funds.

Some of the best performing ETFs with decent liquidity are given below.

The returns will vary from time to time based on movement in the Benchmark tracked and point in time of comparision.

In addition to ETFs, Mutual Fund investment avenues can be broadly categorized under Equity, Debt and Hybrid funds. There are several sub-categories within each category and an individual should wisely choose schemes to build a portfolio which can generate wealth over time as well as provide liquidity and address need for a portion of funds which can be handy if need arises. We assist you to select the best funds among the wide universe of schemes which are suitable to you based on individual’s goals, needs and risk taking ability.

Equity: Equity funds are further dived into Large Cap, Large + Midcap Cap, Midcap, Small Cap funds and ELSS (with Tax benefits under Section 80C). There are also international funds under this category which invest pre dominantly in overseas equities (majorly US). Interestingly, the returns generated by few of these funds is much higher than the returns generated by domestic schemes. Some of the International Fund Schemes have given handsome returns as high as 22% CAGR over 5-year period against NIFTY TRI of 13.4%.  This has been aided by good returns by the top Nasdaq constituents. International funds either invest directly in international equities or act as Fund of Funds (FoF) of Global funds.

The selection criteria would differ from person to person and depend on the risk and demographic profile of the individual.

Debt:

Debt schemes invest predominantly in fixed income schemes issued by Government of India, Financial Institutions and Corporates.

The hallmark of Debt Schemes is relative surety of returns and safety of capital invested vis-à-vis equity schemes with lower but stable returns.  It is advisable to avoid Long Duration funds

Short term /Liquid funds invest in instruments such as T-bills, Certificates of Deposit, Commercial Papers, and other debt securities that mature within 91 days. These are for parking surplus funds for very short duration. Then there are debt schemes which are classified as Low Duration, Short Duration, Medium Term and Long Duration based on residual maturity of instruments such schemes invest in. Short Duration funds invest in instruments with residual maturity# upto 1-3 years, then there are Medium to Long Duration funds which invest in instruments with residual maturity# upto 4-7 years and Long Duration funds for residual maturity in excess of 7 years. These funds invest in G-Secs and instruments of FIs/ Banks and Corporates. there are many more categories based on factors like category of issuers and credit rating of the issuers, etc.

# technically its Duration of the instruments which may be broadly inferred as residual maturty

Hybrid:

Hybrid funds as the name suggests invest in a combination of Debt and Equity schemes. there are various categories in these as well which offer skew towards either debt or equity and schemes which allow discretion to the fund manager based on the market scenario. 

To summarize there are over 2500 mutual funds schemes active in India. It requires good amount of understanding and efforts on the part of individual investors to select the Right schemes suitable to their needs. We help you may the right choices with your investment which can help you create wealth over the long term and realize your financial goals. To put some numbers to all this Gyan, a monthly SIP of Rs 10000 for a period of 15 years can give a total corpus of 50 lacs at end of 15 years against total investment of Rs 18 lacs! That’s the beauty of Compounding! This is assuming a CAGR of 12% (there are various possible scenarios) which has delivered or bettered by many schemes & Nifty in from 2010 to 2020.  If the tenor of investments increase to 25 years, the accumulated corpus would stand at 1.90 crores against total investments of Rs 30 lacs – again the Magical Compounding!!!

Also it may be noteworthy that the difference in the accumulated corpus at the end of 15 years between a well performing scheme and a not so well performing scheme for a monthly SIP of Rs 10,000 can be as large as Rs 20-30 lacs! and for 25-year period the difference can be Rs 50-60 lacs. Imagine the difference if the SIPs are scaled up in line with the rise in income levels. So it is Extremely important to choose the right schemes and regularly monitor the portfolio and make suitable adjustments based on changes in individual income levels, needs and performance.

You can Trust us to handhold you through this journey to achieve Financial Freedom. Our Mantra is Make your Money Work Hard so that you can achieve Financial Independence and Enjoy a Beautiful Life!!!