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Mutual funds is a huge industry and though regulated strongly by SEBI, there are many in-built structural faults in a mutual fund that makes it a highly inefficient investment vehicle. Though it is a good choice if you neither understand the markets nor you have any time.

In mutual funds the fund manager is working with his hands tied.

Even the best of the fund managers cannot generate superior returns if they face constraints in taking decisions.

It is of utmost importance for investors to understand these issues which are mentioned below. 

 

 

Mutual Funds

PMS

Trikaal Capital

Cost

~2%

~2% of funds plus 10 – 20% profit sharing

Only Rs 6600 per year fixed (even lower priced options for small investors)

Cost p.a. for a portfolio of Rs 50 lakhs, and annual returns of 30%

Rs 1,00,000

Rs 2,50,000 (assuming 10% profit sharing)

Rs 6,600

Returns (more details below)

Average returns about same as index returns

?

~Double than market returns

Key Strengths

Easy to invest

Customized

Superior returns with capital protection and positive absolute returns*

Key weakness

You lose money if market goes down

Costly

Money is not handled, you need to do transactions on your own

Investment philosophy

Many variations

Several plus custom

Long term growth with capital protection

Stock holding period

Focus is on annual returns, to stay above the benchmark

?

Minimum 1 year, preferably 3-5 years, can be even longer in some cases

 

Mutual Funds: The Undisclosed Dangers

  1. Excessive number of schemes

There are more than 2000 primary mutual fund schemes in India.

Primary schemes implies the main scheme for example ICICI Prudential Discovery Fund. The variants of this scheme as plans (for e.g. Dividend, Growth etc. options might also exist).

If all of them are taken into account there would be roughly 20k+ schemes.

And there are ~5600 listed companies. Almost half of them are junk or tiny companies not worth investing.

So - selecting a mutual fund scheme is as good as selecting a stock!

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  1. Stocks can be analyzed, but difficult to analyze mutual funds

Additionally, while selecting a stock, you can analyze it in detail, but it is very difficult to analyze a mutual fund based on its holdings, because there may be anywhere from 20 to 60 stocks in a scheme. And if you wish to compare 10 schemes, you need to study hundreds of stocks!

  1. Limited scope to invest in the best opportunities

A mutual fund has a serious limitation to invest according to its stated objective – if it is a technology fund, it will invest only in that area, it will completely miss out on other opportunities. There is no scheme that is open to every opportunity, all have fixed objectives and will limit themselves to that. The limitation may be in terms of sector, market cap, theme, geography, etc.

  1. Limitation of large schemes

If a scheme has huge AUM, it will not be possible for it to invest in stocks of small market cap, and it may miss on several excellent growth opportunities.

  1. Constraint to remain in equities even in recession

Equity mutual funds under SEBI rules are required to keep at least 65% of their funds in equities all the time, even if the market is in recession. This is the key constraint equity mutual funds cannot protect your capital in severe downturns.

 

Trikaal Capital

We do not face any of the constraints mentioned above.

Our returns since we started last year are roughly more than double of the Nifty returns.

Plus, we have the unique distinction of being 100% correct in all our market forecasts ever since we started doing it in 2014. No other entity has this record, and the mutual funds always mention that it is impossible to predict the markets and to overcome that you should stay invested for long term (even if that makes you lose 50 to 80% of your capital - as happened in 2008).

Our Key Strengths - Superior returns with capital protection and positive absolute returns

Click here to read about it.

Published in Macros