Earlier, I was taking it on swing trading, then I found out that Subhashish is doing the trading cover. Now, I had complete faith that if Subhashish is doing the trading cover, he’ll do the full cover. So, I changed my topic. I did the right thing, right? So, I’m going to cover mutual funds for you. We’ll cover it very quickly, to the point.
I’m going to give you all the pointers at once. My speaking speed can be a little fast, so you keep an eye on it. Because we’ll try to cover as much as possible with me. When we talk about mutual funds, there are 3 things that are most important for you. Whether you’re trading, all these things will be useful there too.
And if you use mutual funds for trading margin, you’ll get additional income. So, listen carefully. We’ll talk about the point, to the point, and we’ll talk quickly. There are only 3 things that you have to keep in mind in mutual funds. First of all, your money is in the liquid fund, in the saving bank account, where 3-3.5% returns come.
Instead of that, you get a solution, liquid funds. Do you know? Liquid fund is the name of the liquid fund, it’s the alternative to your saving bank account, whether in the equity market. Is it not going fast? It’ll work, right? It’ll work, right? It’ll work, it’ll work. Come on. Whether it goes up or down in your equity market, it won’t make difference to you. Because you’ve invested in a liquid fund, you’re going to get return of roughly 4%.
This is your alternative to the saving bank account. The second alternative is FD. FD is the most used in India today. And the alternative to that is debt fund. There is only one main difference between debt fund and FD. You get the benefit of indexation in debt fund. And if you do trading, you can trade by giving margin, especially intraday, instead of FD, using debt fund.
Here you will get the same returns as FD, but the most important thing is that you will get the benefit of indexation here, due to which your after-tax returns will have increased a lot in any debt fund. Finally, we have the option of equity mutual fund instead of property. If you want to map any long-term goal, you can map equity mutual funds through Sips.
Is SIP going on here? Yes. OH wow! If SIP is going on after trading, you will definitely reach your goals. When we talk about investment and selection, it is a very personalized method. Investment is like economics. Economics can never be constant. It always changes. This is a perfect example for this.
Before COVID, I went to Australia. When I went there, I was shocked to find out that people there are not getting married.50% of the population is over 27 years of age and they are not getting married. And even after getting married, 70% of the population is over35 years of age and they are not having a child.
I asked the reason, they said that they are facing a lot of problems. They are facing financial problems because they don’t have a job, they don’t have good finances, and their financial life is a little impacted. So, we thought that we should reduce the number of marriages. And even after marriage, we should not burden our children because we don’t have any work. After travelling, I come back to India.
After coming to India, I go to a small village, city. I belong to Kota. I get down in Mumbai. I go to the railway station from Mumbai airport. And I meet some people speaking Hindi outside the railway station. I start talking to them. And the conversation goes on. The conversation was going on like this. The sister-in-law comes from behind. Her… Oh, brother, she was my sister-in-law. What are you talking about?
You are getting sentimental. The sister-in-law comes from behind. We have a little more conversation. We find out that she is earning around 15-20,000 rupees a month. She is from a middle class, lower middle class family. After that, her first son comes. Then the second. Then the third. And then four kids came in front of media asked the same question that I asked in Australia. Why are you not getting married?
They said, brother, I don’t have any work. And here I got the same answer. The question was the same. Why are you having so many kids? They said, brother, I don’t have any work. What should I do? I thought our portfolio will diversify. One or the other will definitely work. So the way this happened, this is economics because people are involved. Investment is also economics.
What I am going to give you in the process, it can be different for you. Through my personal experience, the process I have made for myself, I am sharing it with you. I am sharing the process of debt funds with you. First of all, we will come to your favorite equity funds. The first thing when we plan to invest in debt, the most important thing is safety for you.
Usually what happens when we talk about equity, trading, alga, we talk about anyone. Brother, how much will we get in return? Tell me the big return.2% per month or 3% per month? Or if you get 10%, then gold on marriage. When you are investing in debt here, you never have to go after the return. You always have to go after safety first. Because in debt, more than return on capital, return of capital.
Brother, the money you have invested, you should get it back. And if by chance, there is a risk in debt, then there can be a risk on your entire money. That’s why first of all, before talking about returns, you have to talk about safety in debt fund. When we are talking about safety, in debt, returns and risk are never proportional.
So always try safety first. The second point is, if I give you a secret indicator in debt, if you want to ensure your safety in debt, whatever is your major exposure in debt fund, which 10 parties have been given money, note them. And see if there is anything going up or down in the equity market by any chance in that party. DHFL, debt had a problem later, but in equity market, it came first.
ILFS, debt had a problem later, but in equity market, it came first. Because equity market is always forward looking. If in any stock, debt will have a problem later, and equity is having a problem, then you have to avoid debt fund. Keep this in mind, this is a secret point. And many times it is said that, before investing in debt, we checked the credit rating.
See, with due respect to all the credit ratings, if in 3 months, DHFL’s rating can go from AAA to D, then I have very limited confidence in credit rating personally. That’s why we use this stock market trip. Second is liquidity. Many times what happens is, we invest in FMPs. The biggest problem of FMPs is that; you have been made for 3 years or for 1100-1200 days.
If your fund manager feels that there may be some problem in this party, that too because he has given money for 3 years, many times he is not able to change. He has money, MPs have to be avoided. The more AUM of your debt fund, the better for you. The less AUM, maybe it can be better in equity, but in debt you get liquidity.
And the third point is, a secret point that you will not get anywhere. See how many processes, you will not get this third point anywhere. If you have invested in your debt fund, track month on month, that how much is its Amvis it increasing or decreasing. If there was a problem in UTI credit rating, its AUM was half in 6 months.
Later, its problem was actually exposed in the market. If we see that a big party, a smart party is leaving from any debt fund, then we also have to leave from that debt fund. We don’t need to go and fight with smart players. We are ready to exit with smart players. Third comes, returns. First safety, then liquidity, and third we will talk about returns.
I am discussing returns in the last. There are three important points for returns. First comes YTM, yield to maturity. At what rate have you given money, what is the rate of interest? How many days have you given the average duration? The time horizon you have, you should have a duration almost equivalent to that.
You don’t have to keep more than that. Sometimes we see more returns than that, but sometimes you will face market risk. Finally, modified duration. We used to say that if interest rate increases, then the returns of our debt fund will be less. Do you know this concept? If interest rate increases, then the returns of debt fund will be less.
Many times, there are some debt funds where you will get returns up to 15-20% because its duration was more. Always match the duration of the average maturity and the actual time. Otherwise, you may face problems in returns. Let me explain modified duration with an example. Suppose you have given me money for 5 years at 7% today.
The rate at which it is less is called modified duration. You have given me your money for 5 years at 7%. After a year, the interest rate increases to 8%. Now, the 7% loan that you have given me, will its value be more or less? It will be less because the interest rate is less. So, if you sell it in the market, you will get a low value. You will get a rough difference of 1%. This is what modified duration is. Always keep it in control.
We will talk about equity selection later. But, today, we will not talk about equity selection because wearer focusing on trading. There are 5 important points related to equity that sometimes make us unable to earn money. Let’s understand those points. If you understand these points, you will never face problems in equity mutual funds.
The price for 2 days. For this, I have kept a data in front of you. If we had invested Rest. 1 lakh on 1st January, 2003, we are seeing the value of that on 31st January, 2020.I have removed the data after 2020 because the market crashed once and then doubled again. There was a lot of drama. We will remove that data once.
Before 2003, there was a tech burst. I have removed that data. We have 17 years of data. We have tried to analyze it properly. I am telling you the price for 2 days. If you understand the price for 2 days, you will earn money from mutual funds and leave. It has been 17 years. It has been more than 6000 days. If we talk about working days, 200 x 17 is 3800.There were 3800 days where you were invested.
There will be some good days out of these 3800 days where your portfolio value will increase. There will be some bad days where your portfolio value will decrease. I am telling you to remove 2 out of your 3800 days. If you remove 2 out of your 3800 days, your portfolio value will increase. If we had invested Rest.
1 lakh in the whole day, your value will be around Rest. 12 lakhs in Sensex. I have written some funds in which the value is between Rest. 28lakhs to Rest. 22 lakhs. I have taken these multi-cap funds which were in the market from long time horizon. Only 2 good days and your returns decrease by 250% in Sensex. There are 9,44,000 left out of Rest. 12 lakhs.
Birla Sun Life Equity Fund, this is just an example, there are29,00,000 to 24,00,000 left out. Only if you were not in the market for 2 days. You thought of going on a tour for 5 days.
You were out of the market on the 5 best days. Instead of Rest. 12 lakhs, your fund value is only Rest. 7,60, 000.If we talk about mutual funds, the 29,00,000 that could have been in Birda, are now Rest. 20 lakhs. Such a big value comes in the difference. If you were out of the market for 10 days, your fund value is roughly half.
This means that not all the days are important in the market. Some good days are important and this applies to trading as well. You get runs even if you are standing on the crease. If you are standing on the crease, you get some runs. These are the good days when you are in the market. Whether it is trading or mutual funds, you will earn something there.
Next point is how to have zero risk in equity, especially with mutual funds. We were discussing and we were told that if we started investing in Sensex from 1979 and kept on reading in each year. We invested in 79, 80, 80, 81. We are investing all the years like this. In total, we got 43 years.
Out of that, you will have a loss of 14 times on 1 year’s returns and you will have a profit all the time.33% probability that you will be at a loss. If there is a 33% probability that you will be at a loss in an investment option, especially when you are mapping your long term goals with it, then you should not use i.e. increase it and take it on a 3 year rolling trend.
Invested in 79, 82 reading. Invested in 80, 83 reading. Invested in 81, 84 reading.7 times you will have a loss and all the rest will be profit. Because there is a profit in 1 to 3, let’s see what will be happening 5. You will have a loss in only 3 observations. I am taking the example of Sensex. Here I am not talking about mutual funds, I am talking about Sensex.
And if you take it on 10, 12, 15 years, then you will have all the data available in the past. Zero time comes where your returns are negative. Equity means that in the short term it is risky for you and in the long term it is risky for you. Because debt can’t beat your money even in inflation. Correction is temporary, growth is permanent.
I am very sure you have seen all this. But the time when correction comes in front of us, we feel that this time it is different. This time Coved has come. Every correction has a different reason. For the same reason, the market never breaks twice. Whether you apply this in trading.
For example, the news of Fed is coming, for which everyone is very scared. But currently the market does not break twice. Keep this in mind. It is the same, every time something or the other was different. In 2008, subprime crisis. Means banks are getting bankrupt. Now what will happen to the economy? Leave everything. But there was a crash in the market, but correction was sharp.
But recovery was sharp. It is simple. It is easy to say what you will get from these points. When the market just dipped to 15200, how many people have made top up or made a plan to invest? I am very sure someone will be there.
Do it, do it, do it. Just get one sir. So what happens when correction comes in front of us, we feel that this time it is going to be disastrous. Inflation has increased as if the market did not know. Okay. Regency buyers.
If we had got very good returns recently, then we feel that this will continue in the market. Because on the basis of recent, the decision taken always backfires. In the last year, many people came to invest in mutual funds because the returns were very good. Which is very wrong. I am very sure you all are able to connect with this.
We say that on average, Sensex gives us a return of 12-15%. But the reality is that a year rarely goes in the market where you get a return of 12-15%. The whole chart is present in front of you. Either you get a 50% or 60% return. Or you get negative returns.
On average, the returns of 12-14% that we talk about or 15% that we talk about, they are bad. You can continue for a year. If you can see an exact 12% return in any year, then tell me. You will not get it. And if you have come to do anything in the market or trading, then drawdown is compulsory.
I have presented the data of more than 20 years in front of you. Only 3 years are such where 10% or a little less correction came. Otherwise, every year there has been a correction in the market. We will see a correction of more than 60% 3-4 times. We will see a correction of more than 40-30% 5-6 times.
Every year it is inevitable that correction will come. But after that correction, have you stopped in the market? Are you taking part in the market or are you running away from the market? It will depend on whether you will earn profit or lose your capital by giving profit.