[0:00]You are managing about 300 crores. Almost every single person who is watching this podcast has a running SIP into at least 10 different actively managed mutual funds. What are they missing out on? See, two strategies are enough to be very honest. The whole idea is these strategies shouldn't speak to each other. So you are saying that if I am investing across more than 25, 30 companies, you will lose control. Yeah, you will not have alpha. Most people say that it is very difficult to beat Nifty 50. So why bother investing in stocks? 87% funds right now are beating Nifty 50. This year it didn't happen. No, this year, how did it not happen? You were not at the right place. Mutual fund industry is not focusing on investors like me who has been investing for the last four, five years. I need to go to a PMS or an AIF. Problem there is minimum is 50 lakh investment. I don't have that money. So let's assume the average middle class today is investing 20k to 30k per month. He wants to become a millionaire. What is the portfolio construction? So, Sharan, there are
[0:58]So, Robin, I have been investing in mutual funds for the last 8 years. And ever since 2020, the number of people who are investing in mutual funds have quadrupled. As of now, there are 20 crore demat accounts. Almost every single person who's watching this podcast right now has a running SIP into at least 10 different actively managed mutual funds. As somebody who has worked in this industry for almost 15 years, can you tell me what are the gaps that a person who's only investing in mutual funds is facing today? What are they missing out on? So I think what what is the current gap I see is people end up taking as you mentioned from 8 years, 5, 6, 7 mutual funds. Now if you see from our industry perspective, the only thing we focus in each fund or as India active fund is size, where means bigger the company, the higher the market share of that company in the entire entire portfolio. Whether you take even index fund or you take active funds because of say less liquidity in our country, I'll avoid names but take the top 10 names of our country. So Nifty 50 will be ultimately top 10 companies. Now when somebody buy five funds, he's actually not diversifying. He thinks he's diversifying. He end up buying those five, seven companies only, the big banks, the kind of, you know, the the the we have. So where the retail investor think that he's diversifying, he's rather concentrating on to four, five names. And historically if you see and if you look at the Indian kind of market landscape over say US, in Indian context small cap companies would perform better. There are reasons which we can talk about later and historically also small cap, mid cap has out performed the large cap by a big margin. So if you have say around 1900 mutual funds all together and if you talk about large cap say 100 odd schemes or mid small cap kind of schemes. We maybe the name SEBI's now AMF's is now very clear in terms of how much percentage you can keep to kind of classify the fund as a category. But if you really go deep into two steps further, you'll realize that there are the same names ultimately being repeated. So there is no diversification happening. So I think starting point is of course you may have a vanilla product, maybe as one SIP, as one long-term kind of product. But we'll kind of discover how even the core Nifty 50 Index, which we have, which is the core index is high volatile than some of the new age strategies, which now AMCs are also launching called smart beta, are relatively low volatile.
[3:25]So even with less risk and less volatility, investors can make more money if if they can find the right strategies and AMCs is also kind of launch new funds in that direction. Most people say that it is very difficult to beat Nifty 50. So why bother investing in stocks? Do you agree with that? 87% funds right now are beating Nifty 50. If you look at the large cap sector, historically large cap mutual funds are not able to beat Nifty 50, right? More than 60, 70% of them perform. That will be the issue of the fund manager or the issue of the AMC. I mean, that's our duty, that's the duty for any active fund manager to be able to beat the index. Now, index is a very simple construction formula, right? As we all understand as I just mentioned, bigger the company, bigger the market share. Now, how will you justify a big company, a big bank to grow at a certain rate of compounding? It cannot. Of course, when it was the years of growth, it was growing at 20, 25%. Now it has become such a big bank. You see branches everywhere. It cannot compound at 20%. And if it cannot compound at 20%, how will your money become at 20%? That's not even that not possible. And even if you look at 10 years, seven years rolling returns as well, broad market would get beaten by any multi-factor say strategy 100% of the time.
[4:43]And that's published on the NSE website if you see the research papers. Any seven year above period if you take even rolling returns, so you don't time the market because nobody can. So take any date to any date, seven or 10 year rolling period, 100% time the strategy has beaten the broad market. Of course, if you come three year, five year, it's 95%, it's 75%. That's how. So, uh, I am sure the whole, in being in India, if we can't beat the broad market index, then what's the point of active management? I understand in US the world is very different, we have more of pension funds, we have more of passive environment because of the nature of uh, the quality of companies we have there. In India that is where the kind of meat is. We have so many small cap companies which have lot of alpha potential. If we are not generating alpha in India over index, which is purely large gap, which is driven by size as a single factor, we're not doing justice to fund management as well as to into the retail audience. So today, Robin, you are managing about 300 crores. Slightly more than that. Slightly more than 300 crores. So what kind of returns do you target when you are managing this kind of a portfolio? So, just as a disclaimer, right? Returns are all for right now we are only for reference. So the whole point is, uh, the whole idea of any strategy is to generate three, four percent alpha over the broad market. I think that should be the motto of a fund manager, that if I'm not... But when when you tell this to somebody, 3 to 4% higher returns than Nifty 50, it doesn't sound very exciting, right? So how can you convince this person that even if you beat Nifty 50 by 3, 4%, it's a very big deal? See, same 1000 rupee will become 3000 by 12%. It will become 6000 by 4% extra. Or can double. Compound, right? That's how the, yeah, it will double. So 1000 become 3000 at 12%. It will become at 18, 17, 18% become 6000 rupees. So you can double the same so simple scheme, you so bank money double in 10 years. So I I this is how I explain to my retail customers. In bank if you assume 7.2, which is not even the rate right now, it is even 6. something. Assuming it is 7.2, you can double money in 10 years. Rule of 72, we all have been talking about on the in our world. Now try to bring this 10 year to slightly lower number. Say, I want to double money in maybe seven years, maybe, you know, six years. Then what would you need? Maybe 12% kind of return to gain double money in six years. Historically, our markets broad market is the Nifty has been doing that decent. It has been creating 12% compounding returns, which means double money every six years. So, you first step to you, from a 10 year fixed deposit double money scheme, you move to a broad market, six year double money scheme. Now, now where the main, you know, meat lies, I want to bring it to five years, four years. Now to bring it to four years, what would I need? 18%. Is that possible?
[7:36]Uh, we can't commit any returns because of uh, you know, that's not allowed and nobody knows. But historically, academically, multi-factor baskets, compounding at 18% in India, if you go to uh Nifty NC's uh kind of website, it's all public data, it's all past data. They are sitting at 18 to 22%. But when somebody listens to this, they will tell you that this year it didn't happen. This year we are negative. So how do you explain? No, this year, how did it not happen? You were not at the right place. This year, I told you, that even at 25%, there are returns. Capital markets, PSUs, No, this year when the war is happening, everybody is negative, losing money. No, you don't talk 2026 or you're talking about say entire one year from now. I'm talking about right now, let's say, we are in March. Yeah, in the last three months, we are negative. Absolutely, we will be negative. I mean, we so, stock market is not a machine to kind of generate return at our will, right? It is a process. So what is that time horizon that I need to look at when you all also are making your investment strategies? Because when something like this happens where everybody is minus 20%, people start losing faith in the stock market. Seven years is any how, as I said, seven years and plus, there is zero percent evidence of strategy indices not beating the broad market by this much margin. So I need to keep, you know, okay, if I am looking at a period of seven to 10 years, I will make positive money. Okay. When when you tell this to somebody, they will tell you no, I want to make money fast. This year Nifty has been down. My money is down. So why would I invest for seven to 10 years if the money is not made in the short-term? So I think we need to make sure that the shorter time frame investors also should make money. Okay. And how do you make that happen? Because as you said, historically, in India, short-term is very volatile, right? So if someone wants to invest for two to three years, is it possible to be positive? Absolutely, it is possible. It depends upon what kind of strategies you take. That's why I said two strategies are enough to be very honest. The whole idea is these strategies shouldn't speak to each other. So that it will always generate positive returns for the client. Okay. You will have to do a multi-asset allocation. But multi-asset is, you cannot say that I will generate 25%. So that's the thing. Yeah. You can generate a multi-asset allocation. You can do SIP, but then you don't make 20, 25%. You will probably make 10, 12%. So how do you make this person who wants 20, 25%, become happy with 10, 12%? I said two strategies are enough. So one strategy is the core equity, your regular mutual funds or regular direct stock picking you do. Second is your multi-asset, where there will be allocation to debt, commodities, and equity, depending upon how the cycle is moving in the market. So, how do you manage that? So see, let's say one strategy you say is equity. Second strategy is debt in gold. Yeah, and you want to say, okay, I want to generate 15% and I will keep half in equity, half in debt. It can be done. So let's say a fund manager who is managing 300 crores plus funds. You have done this with your funds, right? You are managing 300 crores plus. What kind of allocation do you have across these two different strategies? So I think we actually offer five to six models depending upon the risk return profile of the client. It depends upon what age group are you in. Whether you are a young guy, whether you're a mid-career guy, whether you're a retired guy, you should have different products. But I'm saying the two strategies are sufficient to gain alpha. What are these two strategies is what we should discuss? Okay. So for someone like me, I'm 28 years old. I'm young. Yeah. I should have 100% equity. Yeah. It depends upon the kind of risk return profile. So usually rule of 100 which is again a good rule of thumb. So it depends upon that. So 28, you should have 72% in equity, 28% in debt. But I believe you should have 100% equity. Okay. Why? Because you have very long time for you. Yeah. That's why I'm asking these questions that if I am young, I have to be 100% in equity. So what are the two strategies in equity that you are referring to? So two strategies in equity which is I'm saying there are two kind of investment which we can do in equity. One is you should be in a in a in a in a say a strategy which is agnostic of size that is called flexi cap fund. So you do not, your investment manager should not stick to large cap or mid cap or small cap. Depending upon what is good to be bought in the market is what you should focus on. This will give you alpha because small cap and mid cap in India has historically outperform the large cap by a big margin. That's what flexi cap strategy do. So whatever is outperforming in the last one year, they will keep shifting to that. Yeah. You will be surprised to know that India, unlike US, small cap, mid cap perform better over large cap, because we are the high growth nation, we are still growing. So if you are running in a product like Flexi Cap, you are agnostic of size. So you don't stick to small cap, mid cap, large cap. So if large cap is doing well, you go more to large cap. If mid cap is doing well, you go more to mid cap. So what is the other strategy that you are referring to? Second strategy is called the momentum strategy. That is, if a stock is doing well, you don't try to time the market that, oh, it has run up too much. It will go down now. No. It says the stock is running, keep running till it starts moving back. Momentum has also historically performed like more than 10 to 12% alpha over broad market in India. Oh, in India? Okay. Okay. Yes, absolutely, in India. But it needs more balancing. Like for Flexi Cap you need to balance, let's say, quarterly, right? Every three months. How frequently do you need to balance when you are doing a momentum strategy? Momentum strategy usually requires monthly rebalancing. But in India right now due to compliance, it is quarterly rebalancing. So it's fine. Quarterly rebalancing is good for momentum strategy because you are buying growth oriented companies. And quarterly rebalancing for Flexi cap and Momentum means I have to pay capital gains tax every time there is a rebalancing. Yeah. So that's the only catch with direct stock. So if you pick direct stock, you will be paying these taxes. So that's why there are other ways of doing it as well. You do a Fund of Fund, which does SIP into this strategy. That's why SEBI has given some relief in terms of when you do a Fund of Fund strategy, they don't charge capital gain tax at the underlying level, but at the main level, when you withdraw money from it. Right. So I don't have to worry about the rebalancing every three months. I only pay tax when I exit the fund. Yes, absolutely. So for young people like me, who want to build wealth and generate these 20, 25% returns with a lot of risk in the short term, Flexi Cap and Momentum are the strategies to follow. Yes, absolutely. And for the next level, where you are say a mid-career kind of investor. So then you take what we call as a balanced multi-asset portfolio. There you diversify across gold, debt and equity. So there is a mix of all the three, depending upon the market regime. If market is doing well, your equity allocation goes up. If market is not doing well, your debt allocation goes up. Right. How do you decide the percentage of allocation across these three different assets? So allocation also follows again a process, which means that how the market regime is there. If market is positive, like in the last two years, right, your allocation to equity will be high. If the market is going sideways, your allocation to debt will be higher. If the market is falling like 2020 crash, your allocation to gold and debt will be higher. Okay. So depending on the market, your algorithm will tell you how much to put in which asset. Yeah, absolutely. It's a risk-based strategy. That's why it's a balanced multi-asset strategy. And the rebalancing for this is again, how frequently? It can be done monthly or quarterly. We do it quarterly as of now. It gives good alpha as well, good return. Okay. So for young guys like me, who want aggressive returns, should go for Flexi Cap and Momentum strategy. If you want moderate returns, you should go for a balanced multi-asset strategy. Yeah. And it will be 100% equity in the Flexi Cap and Momentum strategy. Yes, absolutely. Okay. Thank you so much, Robin. Thank you, Sharan for having me. I think this was a very, very enlightening conversation.
