Last Updated on August 30, 2021 at 12:11 pm
“I understand the need to beat inflation and the need for equity in a portfolio. I understand that the mutual fund route is a simple and convenient way to do it. However, I neither have the confidence, nor the time or inclination to create and manage a mutual fund portfolio. I also do not have the confidence or know-how to select a professional who will offer me unbiased advice”.
It is not hard to find such people. In fact, I might have even described you, the reader. There are several turnkey or “fill it, shut it, forget it” ways to have equity in one’s portfolio for long-term goals.
Mature content warning: The following is meant for mature investors who understand that to ‘get’, one must ‘give’. That both ‘convenience’ and ‘optimization’ come at a price.
When it comes to goal-based investing, two types of maintenance or monitoring is required:
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
- the portfolio has to be monitored wrt the requirements of the goal. “Is it growing at the right pace?”, “Am I on track?”
- the instruments that constitute folio has to be reviewed and suitable action taken.
The first activity is intrinsically personal and has to be done either by the individual or by a designated professional. The main reason why most investors get this wrong is because they are more worried about the second activity.
The second activity requires, above all else, the maturity to ‘do nothing’ and patiently wait ignoring the noise that surrounds us. For example, when folks in AIFW are arguing about why Quantum Long Term Equity holding cash, we need the maturity to understand what ‘long-term investing really means and ‘do nothing’ ignoring the star rating of the fund. Very few people can do this effectively.
It also requires some understanding how to construct a minimalist portfolio and how to choose funds. It is not rocket science but does involve some reading and understanding.
The point of this post is to (reiterate) the simple fact that for those who do not wish to worry about activity 2, simple solutions are available.
There is no escaping from activity 1. However, I firmly believe if the second activity is well accounted for, the first becomes a breeze to handle.
Equity investing is all about faith and trust. Faith and trust that if the economy is to grow, and if the GDP is to grow, equity (or the underlying business) will have to be profitable. These profits trickle down to the shareholders in the form of an inflation-beating return. One must typically wait ‘long enough’ to get such a return without alarming fluctuations.
To see what I mean by low fluctuations, play around with this Mutual Fund SIP XIRR Tracker
If you wish to know how returns in mutual fund SIP are calculated, you can consult this: What is XIRR?
It may so happen that that market movers nowhere for several years and this may coincide when the last phase of your financial goal. Therefore, activity 1 is essential to take suitable steps.
There two simple turnkey solutions:
(1) Your portfolio gets broad market returns by simply choosing an index fund like Goldman Sachs CNX 500 Fund.
Or you even choose any Nifty or Sensex index funds. Stay away from ETFs.
A monthly SIP started 10 years ago in Sensex of Nifty funds would have resulted in an XIRR of 11-12%. Considering that it is tax-free and the fact that one does not have to worry about fund manager performance, I think it is more than decent.
(2) Your portfolio gets returns higher than the index by investing in other (direct plan) equity funds. This is known as a fund of fund. The fund manager uses a clearly defined process to invest in equity funds. The investor does not need to do anything except trust the underlying process.
There are many such fund-of-funds, but I am partial to one.
Mutual Fund Analysis: Quantum Equity Fund of Fund
Perhaps because the process is simple to understand. Mention about this fund and immediately someone will say,
- “but there two expense ratios involved: for the funds in the folio, and the fund of fund”
- “the gains are taxed like a debt fund”
If you want a turnkey solution with near-zero maintenance, you can safely ignore such comments.
A SIP in this fund since inception (Aug. 2009) has produced 18.8% XIRR before taxes.
If I were to redeem the investment today, considering exit load, short-term capital gain (at 30% slab), long term capital gain at 20% with indexation, the XIRR will be 16.1%.
For the same period, an index fund tracking the Sensex would have returned 12.8% (before taxes).
To me, Quantum fof seems like a pretty sweet deal, considering it is a professionally managed mutual fund portfolio and no monitoring is required on my part.
If you argue that excess returns above the index will reduce down the line, and therefore taxes matter, I would argue that long-term capital gains from equity would not remain tax free forever. The disparity between the tax treatments will then reduce considerably.
A person who wants a turnkey solution can invest 60% of monthly investible surplus in this fund and the rest in EPF, PPF. Fill it, shut it, forget it.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)