Transcribe
Yeah doing great. As always. Thanks for joining on Opentalk and for the listeners, I would like to talk about the Deepak first. So Deepak is the co-founder of FinAtoZ, Sebi Registered Investment Advisory firm. He's an IIT Roorkee alumni and IIM Bangalore alumni And today we're going to talk about mutual funds from a common men perspective. Yes Deepak. So first let's start With explaining mutual fund what is mutual fund. Great I think that's a very valid question, you know before we get into why should we invest first? Let's understand the product itself. So I try to explain in a very layman term. Yeah. So let me ask you a question counter question before. Have you placed an FD? Yes I have Yeah, do you feel your investment is secured when you invest in a bank FD? Yeah, I think that is one of the primary reason I place an FD in in a bank because it is probably most secure sure great. So so let me give you a thought. Yeah, let's see. What does Frank do with that money. Yeah, please go ahead. No problem. So when you go and invest your money bank will tell you that okay, I will give you some percentage return and you feel very secure that okay, I'll get this return. So fine my money secured and I will make x amount of minimum on this on this investment. What bank does is it will take that money? And it will invest that money into essentially into his business. How do you miss this? It will give that loan. So you try to find some more over who is either building a home or he may need some money for his sister's marriage or it could be anything when I could be a company that needs to leave his business and he will charge a higher rate of interest of that low character. So when the bank makes money on the money that you have given to the bank then only the bank is able to repay your FD and your interest in the longer term essentially bank is using that money and doing business. And the person who is running that back. He's eventually making more money on that. So eventually if you have to decide, you know, make more money you will have to become a businessman yourself other than the person who is giving a death when you are giving you taking every week is actually like a debt so let's look slightly difficult time to be used for The bank's business will definitely in the long run make lesser money in the bank itself. So you should point is nothing but a way to become a business owner of that back. So other than you giving money to the bank as an FD, you become a business owner if you try to make more money. So just try not to get caught. That was very interesting have never looked at FT in that way. I just thought that I am kind of somebody's making increasing my money just by letting that money sit somewhere which I don't require but but I never thought that actually somebody's making a lot more money on that and I am just probably getting penis out of it. And the other way to reduce your risk as an investor is to own a Porsche the business in multiple business. Only Just One bank vault and Banks not just Banks. I also want to own a manufacturing industry also want to own a chemical industry. I also want to vote on our Automotive country. I also want to own one software company or particle software. salsa You are not betting on the entire system frame, right? So that's where we should want to look very very interesting because just by buying some units of a mutual fund scheme. You can do the entire thing at one shop and again by all these businesses just by putting as well as final piece, which is virtually impossible own. That is not good. So you're saying it is kind of investing in public market only but through a different instrument. So how is it different from I kind of investing in public market directly and buying stocks? Yeah, so so there are some commonality there is some difference that we talked about. So let's say you want to directly go and buy a spot. Spock is nothing but owning a business in one company. Right and you do that for multiple companies and we built a portfolio for yourself. So let's say you have a portfolio of 5x5 idea of these five Pharma companies and so on and so forth. It will be similar for mutual fund but one difference is that you need a lot more money just by adding five thousand rupees. It is virtually impossible to own so many businesses. Because the minimum unit of each business May cost you something so that is one difference. Second differences you may or may not be professionally qualified to buy so many businesses yourself and create a portfolio for yourself. It requires a lot more research more understanding of which back for example is going to go well, so so when you buy it on your own as compared to putting in your mutual fund you are actually buying when you're buying a future want you are getting their professional expertise automatically. Does that answer your question? Yeah, kind of so, okay, you are saying it is like a packaged food. I don't really have to go and pick and choose myself. Somebody has done the hard work of the siding and grouping some companies together and then you just spice that mutual fund. So how does somebody buy a mutual fund? For example, if I buy Public Market investment I'm talking about I buy a share of a company. So in mutual fund how does it happen? What do I buy? So you are actually wiring. So it's coming to the same in the Mochi. You are actually find that package food and then packaged food. We have multiple ingredients. We have some rights are some doll whatever but you know, so you will know which of these are the ingredients of that if you want to take you to those kind of details, but you may or may not want to really bother yourself with that paper. When you're buying that packaged food, you are actually buying all of that in the same quantity, which that ingredient has got into that condition God. So is there like you talking about? How do you choose a mutual fund? Because I'm sure as you talking about they're going to be a lot of stocks in the market and they're going to be a lot of mutual funds options. Right? Like how does somebody choose actually a mutual fund for his or her requirement? Yes. The next level now, so there is a now you want. There are so many types of mutual concern because all four types of movements. All right. To become a business owner of very high quality companies, then you can decide to Mother laughs guess some people are scared of nothing but complete these are very large. So you want to wire that point which is because only two large companies so that your money is relatively safe. But at the same time if you invest into Alaska fine, you're also losing opportunity to invest in postmodern employee that can go faster. So right up front is one big size quantity basically midsize companies. Then there is a small organ function is positive. in fact, the Yeah. Yeah, it says how to diversify in mutual funds. So I think you're answering that question that you can probably have a bouquet of different type of mutual funds and just to make sure that you are able to diversify your heads your risks. So, okay, so that brings to me one interesting question our mutual fund subject to Market risk. Yeah, no. No, but tell me tell me more about the market risk. I think these people talk about it and then they say mutual friends here. So you tell me the market is here. I think that's very very important. And any successful businessmen will be successful if he or she is able to go through that entire period of cyclist counsel. So the market is is nothing but the business risk, so if you want to help me and there's a down cycle is not going well. You may have to go through that time so that you can recover and then when the upcycle comes you will be able to make money on so it is similar to that is what is slowing down. You something to fund the best way for us to take your question One More Level. I had basically to tackle this Market risk appreciate long period of diversity that's why most of the advisers would advise you that please don't invest in quality mutual fund. If you don't have a question, I'm going to look at least five to eight years. Because five to eighty years is sufficiently long time. We have you will have one second as well as well as an airlock cycle and you will be alright, so you are saying that in order to get maximum returns or reduce your risk? Watch what everybody says subjected to Market raise you have to invest in mutual funds having a longer time horizon or are you saying that their particular type of mutual fund like good emotions? You're talking about are only meant for longer time investment, but they are mutual funds where you can invest for short-term achoo. so and there you get more or less fixed rate of any sort of fixed rate of return, but there is a range which is not very different from a cavity. shotgun goes over any business and it's like a fixed rate of return on that because it lets you focus on All right. All right. Okay. So this is a question, which asked what is the sector fund? So let's say for some reason you have done your research and you are very bullish own. Let's say in Information Technology as a sector. We expect that item of these are what you do. So there are funds which invest only IP monkeys they will only pick and choose from the pool of idea of these of these PCS before series. Take my advice on and so forth. We will create a portfolio of companies which are only from that Aisha and you have a choice to invest in that particular fund. If you are expecting that particular segment of your business got it, but the book isn't it? Like now we talking about therefore should ocean of choices in mutual funds itself. So the idea of mutual fund you talked about was I don't have to choose we can choose including but now you are saying I don't have to pick you to the equity but now I have to pick and choose mutual funds. So isn't it like a just shifting the problem to something else and calling it mutual friend? Like how can somebody choose without having to have knowledge or having to have so many choices? What's like the simplest way of investing in mutual funds? When you on Alex it my three or four types of mutual funds without any small size of Western Conference. This can be asked to verify identities. You can potentially the same as y you go 200. But I don't want to do so much research. There are so many types of farms using make it simple. So I'll give you a very simple method of doing it another try to invest into so many different types of points. You can choose one type which is called a multi care. There's nobody at the same time which is agnostic of all the types of companies is a very well Diversified fund and the fund manager himself will choose whether you want to invest into large gap with gaps Market sector, he will himself decide and he will not do all that background work and you just invest into that one and then you get a good balance if I portfolios where you can click to. Performing funds for the future performed well in the past don't just look at last all year later. We get it done what we are going to get maybe a five-year kind of a performance and a lot of you know, if you Google it you will be able to find it. Who all right. All right. So I think there are two questions which are of similar type people are asking what is the best time to invest and that to like second question says in the market which is so volatile today. Is it a good time to invest? In France, the first one is the best. I'm sorry. What was the first one? What is the right angle? Yeah, what is a good time to invest in mutual fund right time is now right time is now. Some amount. So if you are able to do that that income gets disciplined and you actually learn to save before you spend one buffet. This is famous like save before you spend. So you learn to do that and that enables you to buy units of mutual funds in all types of markets. The market is going up, but it's going down. Hence Q average of cost and in the long run, you will never bother about whether you know, so what you're saying is that because it is practically tough. Not possible for you to pick out the right time. So then you should rather do a regular investment and not worry about choosing the right time, right? Even if you're trying to do that, it may not work even for people who are experts. So you as a investor who may not be so much expert. Why do you want to spend time money energy and Deepak? I think your voice is not coming very very clearly are using a year phone. I am actually let me write articles. Yeah, let me let me now it is bear out better. It is better now. Okay. Yeah, we got it. So great. And I think other questions people are talking about Equity versus that which suits me better. I think I don't know about the person but generally speaking Equity versus debt. What is your view on risk versus reward ratio? Or something like that. I don't know if your time Horizon is more than 5 years minimum. And if your time Horizon is less than five years, then you should invest into a debt which of fun just to answer it simply. Got it. In order to then the risk reward ratio owner Equity mutual fund will be far higher than a technician in vice versa. Got it. And what are the tax implications of investing in mutual funds? Yeah, so see mutual fund again, the equity mutual fund comes as a separate tax implication then on that we should fun. So if you invest into Equity mutual fund by and large it is tax free after one year if you invest and stay invested for a year. There is some 10% tax about one legs are not gettin into nitty gritties of that but it is a very low even if you are a large investor and you're a lot of money then But only 10% if you have invested for okay, so let's let's talk about let's for the Simplicity of the discussion. Like is it fair to say if you compare investing in mutual funds from tax implication point of view and you talk about investing in any other asset class, where'd how do you rank mutual fund which kind of text class it is better and which kind of takes place is actually not code from a tax point of view. Yeah, so actually Lee all types of mutual funds are very very tax efficient if you compared alternate For example, if you compare if you compare RFD as compared to a dead mutual fund and assume that both investments will give you same returns. Read acts but then poor tax if you are invested into a debt mutual fund for more than three years. Your tax outgo is much much lower as compared to everything. So it is it is much more efficient. So at the same return and you will make more money in the fund. You will make more money from a tax perspective also, right? So it's a very kind of efficient instrument and the other point that we have not spoken about this as compared to you know other is like the NSA or gold or know even funds mutual fund is very very liquid. What it means is you buy and sell any time and see within two days two business days. You can get your money at the click of a button. So that is also a very important point because you never know. That option is always available in a mutual fund. Okay the but I think we are now coming to the end of the conversation. So like we've been talking about mutual fund say Yeah in so many ways now they take a minute or two and talk about why mutual fund is not good. What are the worst thing about mutual fund? Why should somebody not invest in mutual funds? Right, right. So see there are some types of investors for whom mutual fund may not be a suitable product. For example, someone has a lot of money and he already has not of diversification in his Corpus and he wants Anyone to bet on certain thing, let's say is if you want to bet on certain type of complete. So mutual fund will not be the right product because we will find is a very Diversified product. So the kind of returns that mutual fund will give will be unavailing to the markets. He may not get a significantly higher or lower returns in the market. So so for this segment of investor, it is not going to be suitable against someone who has a very smaller time frame and he wants to make more money it is you want to own a business then Equity Mutual what will not be suitable for that investor for a smaller time frame. Yeah, someone who is very very professional who is doing this day in and day out and who has that expertise himself. He may not like the pics of the mutual fund. Manager and you don't want to pay that fund management cost to the fund manager to manage on his own then why you should invest in mutual fund for there are scenarios where mutual fund may not be the right product and it has to be like that. So you're saying for I don't know the exact number, but for 90% Indians like middle class learning who are trying to have a constant sort of sort of right ironing and stuff like that. That and who are not really Financial Savvy like not in terms of managing their finances, but in terms of Investments heavy like for these kind of people investing in mutual funds make sense, something like that. Yes, definitely for them. And even for people who are sophisticated investors, but they were not have time. Yeah, it will make a lot of sense. I have a professional fund manager and let him have is that fun for you? Great. So I think we have come to the end open of this open dug deeper and it was really great talking to you and I can tell you that I have learned a lot about mutual funds and I'm sure listeners will also learn so based upon the comments. We have not got time to look at all the questions in this open dog, but let's do more open talks in creature. Let's try to deep go deep into the topic and probably talk more about how can somebody choose mutual fund the type of mutual funds and stuff like that, but was really Product free s session and I had a lot of fun talking to you likewise your thank you so much so much for arranging it and really a pleasure to talk to you today. All right. Have a good day. Hi.