Frameworks & Processes I Used to Build My ₹6.2 Crore Mutual Fund Portfolio in 10 Years [Webinar]

Shankar shares his personal journey in wealth building, emphasizing the importance of a structured portfolio approach over individual schemes. He outlines his transition from a reactive mutual fund trader to a more strategic investor focusing on long-term growth through a diversified portfolio. Shankar stresses the significance of time, capital, and return as key levers in wealth creation, advocating for the use of systematic transfer plans (STPs) to mitigate market timing risks. He also highlights the role of fund managers and the value of understanding their strategies. The session concludes with insights into asset allocation, the importance of patience, and the need for a disciplined approach to mutual fund investing.

• The speaker's investment journey began in 2015 with a modest SIP of 5,000 rupees, growing to a portfolio worth 6.2 crores by 2025.
• Emphasizes the importance of building a diversified portfolio rather than focusing on individual investment schemes.
• Transitioned from actively trading mutual funds to a more passive, structured investment strategy.

"This is something which I started in the year 2015 which kind of coincided with me joining ET money as well but somewhere on that period is when I really realized that, you know, wealth is also important in life."

• The speaker acknowledges the realization of the importance of wealth and the beginning of their investment journey.

"In 2015 when I started I used to look for individual schemes and not created by picking schemes. It's actually created by building a strong portfolio for yourself."

• Initially focused on individual schemes but later shifted to building a diversified portfolio.

• Moved from a reactive and random approach to a structured and simplified investment strategy.
• Focus shifted from chasing scheme performance to evaluating fund managers and their methodologies.
• Emphasizes understanding the person managing the investment funds as crucial for informed decision-making.

"Instead of looking at the scheme's performance, I try and look at the fund manager in terms of what his methodology is, what's the strategy that he applies."

• The speaker now evaluates fund managers' strategies rather than just scheme performance.

"From very reactive and random stuff, I think a lot of it has become structured. And with structure, it has also become simple as well."

• Transitioned to a structured and simplified investment approach, improving decision-making.

• Wealth creation is a combination of capital, return, and time, with time being the most significant lever.
• Basic math and compounding principles demonstrate the exponential growth potential of investments over time.
• Emphasizes the importance of patience and long-term investment strategies.

"Wealth is nothing but a combination of capital return and time and I think the sooner the person understands that, it really helps."

• Understanding the components of wealth creation is crucial for successful investing.

"Time is the one that gives us the best leverage as compared to any of these variables."

• Time is highlighted as the most impactful factor in wealth creation.

• Personal investment journey involved consistent SIPs and capital allocation, leading to significant growth.
• Mistakes, such as reallocating funds during the pandemic, provided learning experiences.
• The speaker's portfolio growth is attributed to disciplined capital investment and understanding market dynamics.

"Overall if I exclude the lumpsum part I have invested about 2 crores in the market so far over the last 10 years."

• Consistent investment over a decade resulted in substantial portfolio growth.

"If you have an initial capital here, if you give it time, then obviously a lot of good things can happen."

• The power of compounding and time in growing initial capital is emphasized.

• At age 42, the speaker decided to quit their job and pursue YouTube, leveraging accumulated wealth and investment knowledge.
• Calculated risks and understanding of financial principles guided the decision to transition to a new career path.
• Emphasizes the importance of having a financial cushion and diversified income sources for career changes.

"At the age of 42 I decided to quit my job and here's how the mathematics really went."

• The decision to leave a stable job was based on thorough financial calculations and planning.

"My 3 crores can become 30 crores at the age of 62 when I'm finally ready to hang up my boots."

• Long-term financial planning and investment strategy aim for significant wealth accumulation by retirement age.

• The speaker discusses their financial strategy for early retirement, emphasizing the importance of having a clear plan and understanding personal financial needs.
• Key considerations include having a substantial corpus, the ability to work for an extended period, and manageable monthly expenses.
• The speaker highlights the common issue of not knowing when to stop working and the lack of structure in retirement planning.

"I have 3 crores, I have 20 more years of ability, capability, and willingness to work, so I'll continue to do that. Just these three crores can go up to 30 crores, which means from the age of 42 to 62, all I have to do is to put food on the table."

• The speaker outlines their plan to use accumulated wealth to sustain themselves until retirement, emphasizing the importance of having a financial buffer.

"A lot of people struggle with these two questions that you know I want to leave my job start something of my own a lot of people think on those lines and the second thing is a lot of people also say you know I don't know when to stop."

• The speaker addresses common concerns about leaving a job to start a business and the uncertainty of when to retire.

• Inflation is a critical factor in financial planning, yet it remains a complex issue without straightforward solutions.
• The speaker suggests reversing the thought process to focus on sustainable monthly spending rather than solely on corpus creation.

"What about inflation? And there is no answer to this at least from my end because if I do 30 crores be inflation if I do 300 crores be inflation."

• The speaker acknowledges the challenge of accounting for inflation in wealth planning, suggesting that it is an ongoing concern.

• The speaker introduces a retirement calculator from the National Institute of Securities Management (NISM) to project retirement needs.
• The calculator helps determine the monthly investment required to achieve retirement goals based on current savings and projected expenses.

"It's a retirement calculator you can go on Google if you type in NISM retirement calculator you're going to get this."

• The speaker demonstrates how the calculator can be used to project future financial scenarios and required investments.

"So this gives you a very good idea right that if I want to retire in a few years how much can I spend now and during retirement."

• The speaker emphasizes the usefulness of the calculator in planning for retirement and understanding future financial needs.

• The speaker stresses the importance of designing investment plans for the long term, focusing on retirement and wealth building.
• They advise starting with a plan, even in early stages, and understanding that wealth is a function of capital, return, and time.

"Whenever you think of mutual funds please design for decades. Don't have a very narrow mindset of 6 months 1 year 2 years 3 years."

• The speaker advocates for a long-term perspective in investment planning, highlighting the significance of time and capital over returns.

• The speaker discusses the importance of asset allocation, highlighting the roles of equity, debt, and hybrid funds in a portfolio.
• They introduce the 100 minus age rule for determining equity allocation and critique its limitations as one ages.

"Equity is nothing but growth. So why do you use equity funds? You have to use it for growth. Why do you use it for debt funds? Please don't use it for wealth building. Please use it more for stability."

• The speaker explains the different purposes of equity and debt funds, emphasizing growth and stability, respectively.

• The speaker introduces the safety cushion approach, which involves defining a safety number as a financial buffer.
• This approach allows for more aggressive investment in growth assets once the safety cushion is secured.

"Let's say this blue shade which is there, this blue bar which is there, let's say that's your overall wealth. This is inclusive of equity, non-equity, everything put together."

• The speaker describes the safety cushion as a mental framework for maintaining financial security while pursuing growth.

"This is what I mean by the safety cushion that you've built a safety cushion."

• The speaker emphasizes the importance of defining a safety number to ensure financial security and allow for focused investment in growth assets.

• The speaker discusses the role of hybrid funds in providing a balance between growth and stability.
• They highlight the importance of understanding different types of debt funds and their purposes, such as short-term and long-term investments.

"Hybrid mutual funds are very important because they kind of help you take certain key decisions you know which you don't realize it."

• The speaker explains the strategic use of hybrid funds in investment planning, particularly for beginners.

"Debt, mutual funds, although we kind of categorize everything under one massive category, there are multiple categories around it which have very different purposes actually."

• The speaker outlines the variety of debt funds available and their specific roles in a financial portfolio.

• STP is a method used to transfer money from a safe fund to a more adventurous fund, such as from a debt or hybrid fund into a pure equity fund.
• The purpose of using STP is to mitigate the risk of market volatility by not investing a large sum of money all at once.
• STP involves breaking down the investment into smaller, systematic transfers over a period, ensuring gradual exposure to equity markets.
• It is essential to conduct STP within the same Asset Management Company (AMC).

"STP is nothing. It's a systematic transfer plan and what it effectively does is it helps you move money from a safe fund to an adventurous fund."

• STP allows for gradual investment into higher-risk funds, reducing exposure to sudden market downturns.

"So what you do in an STP scenario is you break it down into three or four boxes of equal size."

• Breaking down investments into smaller parts helps manage risk and allows for strategic allocation over time.

• There are numerous equity mutual funds available, exceeding 2,000 in the Indian market.
• Thematic and sectoral funds are less favored due to their specific focus, which can limit diversification.
• Multicap and flexicap funds are recommended for those seeking diversified exposure across large, mid, and small-cap stocks.
• The 3x3 grid approach is used to categorize funds based on company size (large, mid, small cap) and investment style (value, growth, momentum).

"There are more than 2,000 funds which are there in the Indian market."

• The vast array of funds requires strategic selection to avoid over-diversification and manage capital gains tax implications.

"The way I think of equity is something called the 3x3 grid."

• The 3x3 grid helps in organizing and understanding asset allocation by categorizing funds based on size and investment style.

• The 3x3 grid is used to define asset allocation, focusing on size (large, mid, small cap) and style (value, growth, momentum).
• A balanced allocation is suggested: 50% in large caps for stability, 25% in midcaps, and 25% in small caps for growth potential.
• Growth style is predominant, with 70% allocation, while value and momentum styles are equally allocated 15% each.
• The grid allows flexibility in choosing between active and passive funds, focusing on the best fit for each category.

"On the vertical axis, I have the size which is the kind of companies that that particular fund participates in."

• The grid's vertical axis categorizes funds by company size, aiding in diversified and strategic investment decisions.

"The grid basically is pushing you to say please fit in that particular scheme which fits that box the best for you."

• The grid encourages fitting schemes into categories that align with investment goals, promoting clarity and strategic planning.

• Avoid over-diversifying by having too many funds, as it complicates management and tax implications.
• Consistency in fund performance is prioritized over recent performance spikes, which may revert to the mean.
• Expense ratios are considered broadly, avoiding extremely expensive funds but not focusing solely on the cheapest.
• Understanding the fund manager's strategy and philosophy is crucial, as they are responsible for executing the investment strategy.

"I select schemes only those which fit into my 3x3 grid."

• Sticking to a structured approach like the 3x3 grid ensures disciplined and strategic fund selection.

"I don't chase performance I think I've gone through it I don't invest in new fund offers."

• Avoiding the allure of recent high performers and new fund offers helps maintain a stable and well-researched portfolio.

• 78% of active fund managers in large caps have outperformed the Nifty50 index over five years.
• In small caps, 86% of fund managers have beaten the small cap 250 index.
• Midcap managers have underperformed compared to the nifty midcap 150 index fund.

"What I figured is that amongst large caps 78% of fund managers have actually beaten the Nifty50 index."

• Highlights the success rate of fund managers in large caps compared to the index.

"In small caps 86% of the fund managers... have beaten the small cap 250 index."

• Indicates a high success rate of fund managers in small caps, suggesting their effectiveness in this segment.

• Comparing fund performance net of fees with a benchmark is misleading because actual investments incur additional costs like expense ratios and tracking errors.
• The PIA report's claim that index funds are always superior is challenged due to these discrepancies.

"It's not a proper comparison when you invest when you compare an actual fund with a benchmark."

• Emphasizes the flawed nature of comparing net fund performance with a benchmark which does not account for real-world investment costs.

• Overlap in fund holdings, such as multiple funds investing in the same company, is not necessarily negative.
• Overlap can be problematic if it results in a lack of diversification across a portfolio.

"If two fund managers are saying that hey let's say HDFC bank is good how can that be a bad thing?"

• Suggests that overlap in fund holdings can be positive if it indicates confidence in a company's prospects.

• Small caps are perceived as riskier but do not necessarily offer the best returns.
• The Nifty midcap 150 has outperformed small cap 250 over various periods.
• Value investing suggests lower risk can lead to higher returns, contradicting the belief that higher risk equals higher return.

"The higher the risk the lower is going to be your return and the lower your risk the higher is going to be the return."

• Highlights the principle of value investing where taking less risk can yield higher returns.

• Underperformance often stems from investor behavior rather than fund manager decisions.
• A structured process, risk management, and patience are crucial for successful investing.

"Most underperformance comes actually from behavior."

• Indicates that investor behavior is a significant factor in investment outcomes.

"A sound process protects you when markets don't."

• Emphasizes the importance of having a structured investment process to mitigate market volatility.

• Gold and silver provide weak correlation with stock markets, aiding in diversification.
• International investments can fill gaps in domestic portfolios, like IT product companies.
• Rebalancing should be done cautiously, allowing time for fund strategies to mature.

"Gold and silver is becoming more and more important to have in your portfolio."

• Advocates for the inclusion of commodities like gold and silver for diversification benefits.

"If you notice that a company, a particular scheme is not performing well for let's say 2 years, then definitely that's something you need to investigate further."

• Suggests a time frame for evaluating fund performance before considering rebalancing.

• Lumpsum investments can lead to regret if market timing is poor.
• Systematic Transfer Plans (STPs) and Systematic Investment Plans (SIPs) help in averaging and reducing risk.

"I only do STPs and SIPs. So equity never goes in as lumpsum."

• Shares a personal strategy of avoiding lumpsum investments to mitigate risk.

• The expertise and experience of fund managers significantly impact the success of investment schemes.
• Understanding a fund manager's track record can guide investment decisions.

"Do you want to trust the horse or the guy who's riding the horse?"

• Metaphorically stresses the importance of the fund manager's role over the fund itself.