How To Start Investing in India| Mutual Funds & More | Beginner’s Q&A

This post contains questions from hundreds of participants from several corporate programs conducted so far. They are being posted here, since the blog is a free resource and will help others as well.

The newer questions are highlighted in this colour.

Answering these questions is never easy

For two, rather not-so-common reasons.

• One, because investing in financial products is all about the footnotes. And without an understanding of those footnotes, any one-line response can cause harm.
• And two, because these questions, and about 400 others have already been answered and widely accessible in a book. You’ll find the book here. No surprise then, that I answered these questions with the same enthusiasm as a child who’s been asked to do redo the last week’s homework.

Before we start, a quote by Thomas Edison.

Learning how to invest is indeed ‘work’. Let no one tell you it’s otherwise. Let no one tell you that you could start in a day.

It’s relatively pain-free, once you’ve learnt the fundamentals. But learning the fundamentals is work. The subject is wildly interesting to an eager mind, but it is work still. And it needs effort, and commitment.

Let’s begin.

How To Start Investing in India | Mutual Funds & More | Beginner’s Q&A

There’s just so much out there. It’s a bit overwhelming. Where do I even start?

I empathize. I understand how overwhelming the field of finances can be for beginners. Where to start? Who to trust? Where to begin?

Every seasoned investor was once where you are now. The field of finance is too noisy and the information is too scattered. And the presence of commissions means that pure, unbiased advise, or education is very hard to come by.

So go here and do your future self an elephant sized favour. Order a copy of the book and read it this weekend. It has everything that a working adult needs to know to get started. From fundamentals of equities and other asset classes, to loans, insurance, taxation, salary structures and more.

Which platforms should I use for investing in direct mutual funds?

For Investment in Stock Market & Mutual Fund which is good & easy to Use Platform?
Should we use Multiple Platform or keep it One?

I’ve listed some popular platforms for direct mutual fund sites in the first point below. However, the approach I most recommend, is to deal directly with the source’s platform.

All mutual fund providers run their own investing portals. Basically, once you’ve finalised a fund, look for that fund provider(AMC’s) own website.

This does increase the number of platforms you’ll need to use, but since you’re dealing directly with the source, your conflict resolution is simpler, and often faster, as you don’t have to go through yet another layer of customer service.

1. For a list of direct fund platforms in India, refer to this post. If a site isn’t on this list, it most likely does not provide access to direct mutual funds.
2. There is no one privately-run site which truly stands out in all aspects.
3. Sites like Scripbox, fundsindia, upwardly do not provide access to direct funds. Read about such sites here.
4. Demat account providers like Sharekhan, ICICIDirect do not provide access to direct funds. They become the intermediary/middlemen. Zerodha does, but the units are held in de-mat form. This may create problems if you ever decide to not use Zerodha.

What kinds of investments should one make for retirement planning?

I’m going to assume that you are in your mid-30s — or at least that your retirement is at least 20-25 years away.

Don’t rely on pension plans and pension products to generate your retirement corpus. For the timeframes we’re talking about here, investing in equities is an absolute must.

Even within equities, there are several ways to go about it. From individual stock picking, to mutual funds, to NPS. I know it sounds complicated. It unfortunately is.

But it’ll all make much more sense once you understand the fundamentals — both of asset classes and also of how mutual funds and other products work. So please spend time and build a strong base. You’ll find it useful for life.

I’ve already invested in a ULIP or an LIC. How can I exit them?

Every LIC policy and ULIP is different. So a blanket recommendation on when or how to exit is impossible to make. Start first by calling your agent or customer care and asking what would happen if you did exit.

You will be able to decide reasonably well after building up some basic knowledge of finances. But if you’re not planning to do that, consult a financial advisor. You can find a list of fee-only financial advisors here.

Which are the right mutual funds for beginners and those who are risk-averse?

There are multiple stages of risk averseness. It’s not 0 or 1.

Complete risk averseness is typically a symptom of poor financial literacy – and in extreme cases, of poverty. If you never care to build that knowledge, you will most likely be risk-averse for life – which is a terrible way to live life in general.

If you are 100% risk averse, stick to investing in FDs of large banks or small savings of post office schemes. But if you are specifically interested in equity mutual funds for risk averse investors:

1. Pick up debt-equity hybrid mutual funds.
2. Pick up index funds or large cap funds.

I could explain more about why these type of funds. But I’m afraid I’ll just end up writing a whole book again.

I know why I need to invest. Can you please tell us how to start investing? Should I start by opening a Demat account?

You don’t need a Demat account to start investing. A Demat and trading account is only needed if you plan to own individual stocks stocks or ETFs. And beginners need neither.

The ‘How’ indeed can be confusing for beginners. With this in mind, I’ve dedicated an entire chapter dedicated in the book called ‘How to invest in just about anything’. It provides clear step-by-step instructions on how to go about investing in various products, or buying the right insurance policies.

How To Start Investing | Mutual Funds & More | Beginner’s Q&A

1. What is the ideal debt to equity ratio, or the right mix of mutual funds/categories?

2. What should be % allocation of total corpus in Following Assets Class (Assuming 25 Lakh Corpus is available for investment)
1) Pure Equity ( % wise how mush should be in Large cap , Mid cap)
2) Mutual Fund
3) Gold ETF

3. Out of the allocated corpus for Mutual Fund What should be % allocation of different mutual fund ( Debt fund , Liquid Fund, Pure Equity Fund, Hybrid fund, Mid cap fund ) etc.

Imagine you came to me and asked this same question, but for the purchase of a vehicle.

I have 25 lakhs to spend on a vehicle. What should I buy?

At that price, one could buy a high-end bike, an SUV, or a microlight. But for my answer to make sense, I’d have to ask you a few follow up questions.

1. Do you prefer a car, a bike or a microlight?
2. What is the size of your family? If it’s a car, how many should it seat?
3. Do you want one which drives fast, but doesn’t have a lot of safety features? Or the one that’s very safe, but doesn’t go very fast?

and so on.

One 23 year old’s needs for money, could be vastly different from another 23 year old.

1. One might be planning to take up PG studies, other could have a lot of dependents, while another could have no liabilities at all.
2. Those who are older could have kids and parents are dependents, while some may have no kids and financially well-off parents.
3. Going by the same reasoning, you could easily find a senior citizen who has a higher risk appetite than a 25 year old.

So choosing on the right mix of assets, is highly specific to you, and you alone. Your life circumstances are vastly different from your colleague’s or that of your friend’s.

So there is truly is no ‘ideal’ asset ratio, or an ideal mix of mutual funds. It depends on your life and your goals.

However, even if you are an aggressive investor with a high risk appetite, I would not suggest more than a 60% exposure to equities. Things may appear rosy when the markets on a bull run on account of a recency bias. But anything more than 60% will make you lose sleep, increase stress, and lose sight of things which are more important in life.

How do I select and identify mutual funds?

Firstly, figure out your risk appetite. Decide first between debt and equity. Every category of mutual fund behaves differently.

Once you’ve decided upon a category, sites like Value Research, Moneycontrol, ET, Morningstar rate mutual funds based on a host of parameters.

There’s no doubt that these ratings can’t predict future behavior. But they are a good indicator of the past, and a great place for new investors to start.

How do I monitor my funds and my portfolio?

For monitoring funds, most mutual fund investing sites provide tools and dashboards to for it. None of them are perfect. You’ll simply have to try a few out and eventually, you will find something which works reasonably well for you.

Why do I need life insurance? Should I only buy term insurance for my needs?

Term life insurance is something you should have even before you start investing. It is also the only type of life insurance you need.

1. Read this post here to understand why it’s so important
2. This post on why you should avoid ULIPS and this one on LIC policies which also provide a return.

How To Start Investing | Mutual Funds & More | Beginner’s Q&A

Should I invest in NPS?

You can read this post on NPS.

How can I switch existing mutual fund investments to direct plans?

Typically, you will need to sell your investments in regular plans and re-invest them into direct plans. This opens you up to capital gains tax. So you’ll need to evaluate the costs. 9/10, if you are investing for the long term, you’ll be better off bearing this cost and switching as early as possible.

Some AMCs allow investors to switch from regular to direct without redeeming the units, but you’ll need to evaluate that on a case-by-case basis.

How can I invest in international markets?

You can pick an international fund or an ETF. There are quite a few options now.

What about index investing, ETF investing?

Can you share some of the links for reading on Index which you told during the session

Index funds and ETFs have among the lowest overheads when it comes to passive investing. However, the verdict on whether they perform better than actively managed mutual funds is still out there. You’ll be able to find data to support both arguments depending on which category/period you pick. I’ll write a follow up posts next week which will specifically highlight this ambiguity.

For now, here are some links for further reading.

1. SPIVA India scorecard — A report which compares the returns of actively managed mutual funds against passive funds like index funds.
2. Indexheads blog – A group of individuals committed towards promoting index based investing in India – /

All this apart, if you’re planning to only invest in large cap funds, you should definitely consider investing via a large cap ETF or index fund. Some studies have also indicated that over a decade, only 1 out of 6 portfolios beat the returns of a purely index-fund based portfolio. One thing for certain is that index funds take the guesswork and the research out of which mutual fund to invest in.

You’ll find ETFs for every asset class including Gold. And how much to invest in each again depends on your personal risk appetite.

How To Start Investing in India | Mutual Funds & More | Beginner’s Q&A

1. Can Real Estate investment should be part of assets allocation? Is it appropriate to Buy Real Estate or Stay on Rent which is more advisable?

2. What should I do If I already have a home loan?

3. Should I buy or rent?

Purely from a mathematical/returns perspective, renting makes far more sense than owning a property. The answer to this has remained the same since decades now. I’m not just talking keeping in mind the recent downturn. The only reason real estate seemed so lucrative is because of the large figures involved. You’ll find plenty of articles online which will validate this view. Rental yields in most metros in India hovers around 2-3% — which means you would’ve been better off even if you had invested in an FD.

But, from an emotional standpoint, a case can be made that not all investments are about returns. Owning your own home gives you the freedom of designing it the way you prefer, and escaping the nightmarish stories of terrible landlords.

So buying a home for self occupancy makes sense — but unless you’ve landed upon a stellar deal, don’t expect it to provide great returns. It’s again a tradeoff decision that you need to make. The math however is clear — renting makes more sense than buying.

I’ve discussed real estate investing in far more detail in the book.

How to start investing in India in stocks?

Should we take any specific training for investment on Stock Market for Equity?

Where do I start on equity investing?

I do not personally advise anyone to start their investing journey directly with stocks. People act too hastily, and often out of greed, and end up losing money. The knowledge required to pick good stocks is rare and isn’t one that’s available widely.

It isn’t easy to find good stock picking resources – especially ones which place emphasis on fundamentals analysis. The individuals who are really good at stock picking, are so comfortable in life, that they have little intention to teach. The effort involved in teaching effective stock picking is too high — not to mention the fact that not every stock pick could turn out to be a winner. A recent blog on Zerodha, stated that most investors who trade stocks often end up generating lesser returns than that of an FD over a 3 year period.

So if you are beginner to equity investing, start with mutual funds — and that too after understanding how they work, their categories, their risks and so on.

If you are however determined to pick your own stocks, start by picking up stocks of bluechips and large caps across multiple sectors. This reduces your chances of losing money, while allowing you time to understand fundamental analysis. Picking multi-baggers isn’t a science by any means.

Why is the price of Gold going up?

The price of gold tends to go up in times of financial turmoil. And currently there’s a lot of it. We have trade wars, and a pandemic at the same time. This price behavior is rather typical and has happened several times in the past.

But long term returns of Gold don’t match up. If you do decide to invest in Gold, you’ll also need to know when to sell it off.

Are there courses for beginners on how to start investing in India?

Most courses on how to start investing in India are hosted by distributors who promote a specific financial product or a financial service. So impartial, unbiased courses are very hard to come by.

But there are some simple ways to check if a financial program is being unbiased and impartial. You can read my article on medium here.

I’ve founded an initiative called the The Moneyplanting Program with this very need in mind. More about the course here, and course reviews are here.

Can you review my investments or provide financial advise? I’m willing to pay a fee.

Sadly, no. I am not a financial advisor and have no intentions of ever becoming one. It’s a lot of work, and it takes time away from teaching and writing — two activities which I enjoy much more.

If you do think you could use a a financial advisor, I’d suggest you only hire fee-only financial advisors. You’ll find a full list of such advisors here.

How To Start Investing in India | Mutual Funds & More | Beginner’s Q&A

If we need to save for the rainy day, i.e the emergency fund, where do you think we should save this? Cash, Bank, FD or Mutual Funds.

You can chose FDs, liquid funds or overnight funds. Bear in mind that since this is a rainy day fund, the goal should be to keep it safe and protected. There’s little sense in chasing returns here.

You mentioned platforms like scripbox, fundsindia take away a lot of our money via commissions. So by what means do we invest in mutual funds?

Where all can we buy Direct Mutual Funds?

You should use platforms which provide access to direct plans of mutual funds. There’s a little bit of info here on direct mutual funds, but it isn’t complete. Book has the rest. Because you’ll also need to know how to pick/choose the right mutual fund.

A full of direct fund platforms in India is available here.

If we have 1L, instead of investing all the amount in one place, should we not invest in multiple places. i.e FD, House, MF, Stocks, Gold. If yes, how much percentage would you suggest in each medium.

You are right. It makes no sense to invest the entire 1L in a single place. No investor has just one type of asset class in their portfolio. How you split across these assets will again depend on your goals and risk appetite.

Again, strictly speaking form a mathematical and historical perspective, just investing across Debt and Equity instruments should serve an average individual well.

There’s unfortunately no way to comment on the percentage without undertaking a through conversation. But there is an entire section in the book on goal planning and asset allocation.

June 2021/AP Session

A critical thing to understand when it comes to finances is that answering any question isn’t straightforward. It’s a vast subject full of page long footnotes. And without an understanding of fundamentals, even the footnotes make little sense.

For example, here are some seemingly simple questions which almost certainly cannot be answered in a few simple lines, while some cannot be answered at all, but only debated.

• Which sportsperson is the best sportsperson in the world?
• My head hurts and I have a high fever. Which medicine should I take?
• Is monotheism better than polytheism? If so, which religion is better for me?
• Which diet is best for someone in their mid-30s?
• Is having one kid better than having two?

So, my apologies in advance if some answers seem vague. In such cases, I am either

• Expecting you to take time and learn the fundamentals better
• Or understand that some answers indeed can never be straightforward.

So please pick up the book and create a foundation of fundamentals before jumping into more complex topics. Everything I teach is in my book. But you can pick up someone else’s book too. No skill can be learnt by attending a few theory classes. You need books(often more than one) and plenty of practice to develop a skill.

Questions related to future

Which sectors would be best for investing for next 10 years, both MF & Equity?

Is market too overvalued right now to enter given the dissonance between stupendous rise in share prices and relatively lower economy growth

For Equity investment, Is there any rule to book profit ? Even though with conviction if we have about the organization basis fundamentals still should we book profit at certain percentage?

The number of decorated experts who have been wrong about the future are far too many — governors of banks, fund managers, equity analysts, economists. Search through about 100 years of capital market history and you’ll see that absolutely no one has been able to predict the markets with any consistency. They’ve been right occasionally. But what is the significance of being correct on an off-chance?

Markets might seem overvalued from time to time. And sometimes they indeed are. But today’s highs end up being tomorrow’s lows. This has happened quite often. Investors stop investing after deciding that the markets are expensive and keep waiting on a crash/correction to invest back in. Several times, such a correction never comes, or only comes after 2 or 3 more years of bull run. A bull run which they missed since they were waiting on the sidelines. No one here has the sight of the future. And at any point in time, you’ll be able to find experts with contradicting views. In the same light, sectoral calls have been more often wrong than right.

So do the only sensible thing you can. Act based on things which are in your control. Balance your investments as per your asset allocation needs and keep SIPs going. And if you need to book profits to maintain your asset allocation, do so. SIP automatically ensures you buy less when markets are expensive and buy more when markets are cheaper.

Answered in the book or the blog

These are questions which have already been covered in significant detail in the book. A few here have been answered somewhere in the rest of this post.

• Can we convert Regular Fund into Direct funds without selling
• How to identify direct MF? Any suggestions on such MF
• Can we convert Regular Fund into Direct funds without selling
• How to monitor MFs if invested in direct fund on various AMCs – How can we get the consolidated view ? Which are such websites or platform ?
• For short term investment like 5 years, in which funds i can invest
• For long term investment like 20 years, in which funds i can invest
• Whether SIP investment is better or Mutual fund investment is better
• As you said the regular saving scheme in MF is indirectly occurs commission to middle man than from where do we do the direct MF plan from same adviser? or from the direct AMC’s website?
• Why are there two indices (BSE and NSE)? Which one is better?
• Why do stock brokers charge higher than middle man?
• Is it always better to invest in ETFs than Index Funds?

New ‘ísh’ Questions

Do Portfolio analysis apps comes with any risks ?

Yes. At the end of the day it’s just a person who is running the show. And someone in the organisation will have access. So these apps have same risks as any other app — perhaps slightly more so, since you are uploading personal information.

Which book will you recommend before investing in Equity Market ?

Equity investing is a mammoth subject. No single book covers everything — no single book has complete authority. They all tend to focus on different aspects of equity investing — fundamentals, analysis, strategy. I’d suggest starting with broad fundamentals first. Most folks who jump into equities directly jump into the deep end.

If direct funds are without commission how do Aggregators like ET money make money… do they still make a cut in the investments done through them?

Not through your direct mutual funds at least. But they have to be in business after all, so they try to sell you other items through which they can make money — digital gold, insurance or something else. This issue is discussed in much more detail in the book.

The strategy of systematically investing through SIP in any fund can the same strategy be use while investing in stocks directly and how?

Most demat account providers provide a way to systematically invest in stocks the same way you’d invest in mutual funds. I however see far too many downsides to doing this. Can you say with conviction why you’d want to SIP in a single stock? Have you considered the overheads?

Which FD is better bank FD or any constitutional/company’s FD is better as company FD gives higher returns?

The word ‘better’ has multiple meanings. FD investments should be more about safety than about returns. So does ‘better’ mean better safety or better returns? New banks will often provide better interest rates than established ones. An FD in a registered bank to the tune of 5 Lakhs is insured by RBI. This 5L includes the interest as well. So if you want to spread your FDs across multiple banks and take some risks, you can do so keeping this in mind. Corporate FDs need to be evaluated based on their ratings and come with no guarantees.

Can you share few examples of good index funds?

An index fund is for most part of it, only as good as the index it tracks. And the word ‘good’ again is ambiguous. Good returns? Good safety? Good spread? Good strategy? Index funds are available for both debt and equities.

When it comes to equities, a combination of Nifty50, Nifty Next 50 index funds offer good spread and diversification. But keep in mind that there is zero guarantee that they will beat other active mutual funds. If you are bold, there are also some momentum index funds in the Indian market now. Momentum investing comes with own footnotes. So as usual, please read more.

Which Mutual fund ranking list is more reliable?

As of now, value research seems to have a decent rating system. Others seem far more fragmented.

How do companies (BSE: 30, NIFTY: 50) get shortlisted and how frequently this change happens. Factors deciding company’s entry and exit?

Each index has a different way of picking constituents. Typically it is based on market capitalisation — either free float or total. But there are probably hundred more indices which pick its constituents based on a host of other factors. Sometimes, it’s a formula. All indices publish this info on their pages/index document. This is vast subject on its own. And not one that can be answered in a paragraph.

That it for now. Happy Moneyplanting.

Vinod

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