Do not expect returns from mutual fund SIPs! Do this instead!

[@aarnalifestyle]

With due respect, I wish to say that this is an intellectual flaw that is shown here. First it is shown that returns are decreasing..No they are not. Sensex and nifty mirror. GDP. GDP growth average is 8 percent and inflation is 6 percent. So Index return has been around 15 percent over long period..The decrease in return that Mr Pattu is presenting is likely due to decrease in inflation..It is likely saying banks in India give higher interest rates than those of USA. No they do not, you need to factor inflation...Of course no one can predict future ...GDP growth can be higher or lower...But that is the best option you have..I have seen some people commenting here that they are reducing their equity investments..Do you think debt will give you returns when the equity market fails. Do you even know how Economy works. It works on credit. If industry fails, you think your debt will be safe...?? Industry returns have to be always higher then debt returns else your debt market will collapse... Of course he is right is telling you that have around 50 percent in debt and to rebalance the portfolio. Well those are the basics which Been Graham taught us long ago..But to take an overtly pessimistic view on equity is not right. It is still the best option you have to grow your money even considering all it's volatility..

[@pattufreefincal]

Yes yes equity is the best asset class. Anyone who talks about risk is flawed. Real returns in India have little to do govt reported inflation.

[@rameshparekh581]

@ashutosh Retail equity participation in India is in the single digits. When the economy grows, more people will come to buy stocks. If a smart investor tries to accumulate as many units as possible during the current fall, then the bid-ask ratio will actually give them a higher % of returns than the EPS+inflation rate later. Having 60 : 40 in equity/debt is the best ratio. I would still say SIP is not the best method to enter equities. A lumpsum done at a market slump gives best returns. Accumulate your money in a debt fund and wait for 4-5 years. Move into equity whenever there is a slump (2003, 2008, 2013, 2016, 2018).

[@rameshparekh581]

@@pattufreefincal Equity really is the best asset class. Real estate doesn't even have the decency to give us transparent valuation figures. It's all infested with black money. Here, at least we get full transparency and an educated tax payer gets a cleaner investment. Debt is riskier than equity because we have seen situations in 2012-13 where interest rate was 9-10% and inflation was 13%. So our money was being eroded by -3% every year. When the economy goes down, even debt funds cause a loss (indirectly) via inflation but when the economy goes up, our upside is capped. Equity, at least, gives us our due when the economy goes up.

[@pattufreefincal]

@@rameshparekh581 oh dear God!

[@rameshparekh581]

@@pattufreefincal India will be pulling 300 million people from low income into an middle income economy. 60% of the population is still dealing with interrupted power supply. Most of our economy is informal and incomes are un-reported. All of it is getting formalized now with GST and digital payments. Half of our economy is agrarian and we still haven't mechanized it. We aren't running at peak potential. We are punching below our weight. There's still 20 years of nation building to go before we stagnate. Why the pessimism about equity? (I can understand pessimism against SIPs and mis-selling by MF sales agents). Indian business will grow at a rate higher than their borrowing rate. It might not be 15, 20, 30% CAGR, but even if it grows 1-2% over the cost of capital, that's good enough. Would you rather lend money to businesses via debt and earn 6%? or own their stocks and earn 9% returns over a long period?

[@ankurbamne7155]

Sir, we love ur problems based approach. No one wants to swallow a bitter pill! The actual answer to a lot of questions is ' I don't know'. But not many ppl admit!

[@tapabratadas8911]

Sir you are absolutely right, Investment procedures are not like rosy pictures.

[@kartavya20]

Perfect, no expectation but with right asset allocation and re balancing periodically hope is to reach target corpus.. 👍

[@rameshparekh581]

That's the right mindset. Often, stocks remain stagnant for 7-8 years before they rally. That's the nature of equities. If you hold for 20+ years, you will see 3-4 boom-bust cycles and you can time your exit during the last boom to get some extra alpha.

[@akshaylakhanpal7247]

There is no correlation between investor skill and the returns obtained. The quickly u realise that while investing u don't have any surity of anything, the better it is. The benefit of hindsight makes us explain things because that gives some order to our decisions. But essentially the market returns is just a random number generator.

[@pran10000]

Very true. No surity in equities...

[@gaurav4131]

I'm eagerly waiting for the next video which should be like "Professor Pattu vs Dhirendra Kr of Value Research" ☺

[@rahul61203]

Sir ab mutual funds me investment kre ya nhi plz btaye?

[@maheshdeshmukh1888]

Hats Off Pattu. Awesome as Always...

[@maheshdeshmukh1888]

One More thing , In the last 8 year after asset allocation and rebalancing my portfolio return now is 9%. If I did not do that what was my return. It could be below 5%, I guess.

[@SHIVANKARTIWARI]

For rebalancing stuff, how do you park the money in debt instruments ?? Since most of them r not tax efficient and PPF etc have long lock-in period.

[@cv8255]

Excellent video Pattu. Keep it up

[@sushantkulkarni97]

Hi Pattu, I like your unbiased and almost a contrarian to general sentiment view on the market. Since this video came out pre-covid, has your take on the post-covid market changed? SIP returns kind of shot up due to the recent bull runs. Is that a one-off scenario?

[@cmrdecc6516]

He doesn't know!

[@rakeshthakur8126]

Nice video sir. Going by your opinion index funds are much more safer. Please make an exclusive video on index funds. I am 43 and know nothing about mutual funds and intend to invest in index funds for 15 years. I would appreciate if you tell me which index funds to invest in. I intend to invest through sip of 25k for 15 years.

[@Amitchopra1312]

It's time for the updated version of this video with new data. Things like COVID-19 crash and current side ways market of 2022-23 being captured in this data, will make the updated version of this article and video even more practical and important.

[@pattufreefincal]

concusions wont change!

[@Amitchopra1312]

@@pattufreefincal I know that sir 😊

[@sanmankn8055]

What's that ambiguity, at 12.30 min, u have said, have fixed goal... Then don't expect anything from SIP investment!!!!... Nobody will be able to fix a goal without expecting some minimal returns on investment.. Let the expectation be 3%,means less than inflation, still that is an expectation. If one doesn't want any expectation, then why put in mutual funds or stock market, put in savings account and be happy. You are trying to give msg sir but in btwn you have confused the thing. One should have expectation, without expectation nothing works. Or you can tell me, how you arrived at target goal, without keeping expectation as minimal returns in ur investment?. Not possible. everyone will have to have an expectation. Expectations might not be realistic to be met but one can't live without hope /expectation. Not the unrealistic expectation that, one will get 20% returns, but atleast expecting some around 10% returns in good or not bad. In your own old videos while discussing you have only said, "assuming that some" x "percent returns on something n something, we have to save this much and all"...

[@tejashriprabhu3039]

My personal opinion. I might be wrong. Hope and expectation are two different things. Have hope but do not have any expectations. Simply because nobody can predict the future. Our only hope should be to achieve Target corpus. Things which are not in your control:::::: Fluctuations/sideways markets Things which are in your control::::::::: Assess your portfolio every year. Try to achieve expected annual Target corpus by adjusting asset allocation. Increase investments every year. Decrease equity exposure way before retirement. Have hopes Do not have expectations.

[@askm7649]

pattu u r always right, and you r grt

[@rohanr221]

With all due respect sir, let's assume we won't make any money with equity, and inflation is going to increase so much that it's going to break our bones. But, if everything else is becoming costlier, do you think that one unit of an equity mutual fund that's available for 20 rupees today, would still be available at 20 rupees 15 years later? Won't that 20 rupees jump to at least 40, assuming everything is becoming costlier including salt? And in that case, all the units that we buy at 20 today is bound to profit us at least a little in the future. Yes, there's statistics to back whatever you say, but there's logic and rationale that can be applied to certain things.

[@pran10000]

If the market is down when you need the money then you have a big problem... otherwise what you say is true.

[@bijuldesai3097]

I guess it's no point writing off SIPs completely, may a be having some percentage invested in SIP is not bad idea . One thing I agree focus on creating good corpus and not expect big / unrealistic returns .

[@pran10000]

He himself suggests to invest each month there is no alternative. But 'have a derisking plan' is the only thing in your control...

[@kannannarayanan3522]

Excellent eye opener and vanilla truth. It is not possible to predictive what would be future MF return. Thanks for sharing this truth. Let investors take risk if it suits.

[@abdul039]

Thanks Sir for the real advice which no one shares.

[@ussagar]

abdul039 yes only he does. Follow a guy with a net and camera and drop every other knowledge you may have from other resources. Come on man.

[@abdul039]

@@ussagar You may have your view, there is nothing wrong in having a different view. I like his view better, he is showing real data and not faking like distributors or insurance agents. Equity isn't bad and i would say equity is a must in portfolio as long as you have right asset mix. The same thing he says.

[@prrash1985]

@@abdul039 he's showing flawed statistics

[@pran10000]

@@ussagar A guy with a camera but real backtested data

[@pran10000]

@@prrash1985 That is real historical data.. But yes truth is bitter

[@dilikeswardas3985]

I don't understand even if u r educating others, why r u sounding so crazy...

[@pattufreefincal]

because I am. and I have no preconceived notions about educating anyone

[@sanjeevruby]

He is a teacher and an financial advisor

[@prrash1985]

I think he's frustrated invester . Teaching is noble job please don't tag this overtly pessimistic n intellectual sounding guy to that category he's misleading

[@dileep31]

@@prrash1985 the person in this video *is* a teacher. He is a Physics Professor at IIT Madras. He is intellectually sounding, because he is one. And explaining reality using actual data is not pessimism.

[@prrash1985]

@@dileep31 data or statistics can be presented as you want. Don't think he's education qualification or his professions as an IIT teacher makes no difference. This pessimistic idiot is blot an teaching . Fyi I make livin' with data or statistics n have doctorate with statistics

[@scorpian6013]

The best mutual fund in Philippines give 1.5% CAGR in 5 years.

[@jaganv3354]

Where we should invest to get return/ which is morethan Inflation.?

[@himanshualive]

I am in my late 20s and just started investing after my father's demise. With due respect, you do demotivate a lot of young investors such as me and with the current market scenarios, you might be right even if you can't predict the market. The only take away I take from your videos is that I shouldn't be investing all my money in SIPs. So apart from my equity SIPs, term insurance and health insurance, I started investing in recurring deposit and got myself a Jeevan Anand policy. The ratio for SIP, RD and LIC is 65:20:15, would probably consider PPF to have a better ratio. Your thoughts?? Keep demotivating 😊😊

[@U1vik]

Come out of LIC - if you have invested in it. It's only for insurance and not for investment, as it's name suggests.

[@rameshparekh581]

SIP is not the best way to accumulate equity. Start an SIP into debt funds to collect the stream of monthly salary into a 'reservoir' and wait until the market corrects and do a lumpsum transfer from debt to equity on major corrections. Reason : SIP into equity cuts your CAGR returns by 50% (because as the market rises, your SIP will be buying newer units at a higher rate). If you had done lumpsum in 2008, the CAGR at the end of 10 years is 17%, but if you did SIP in the same time frame, the CAGR is barely 8%. Every 3-4 years there is a slump in equities. One must collect money into debt and move it into equities when the market slumps. Long story short : Accumulate equity ONLY on dips, don't keep buying throughout the rally.

[@himanshualive]

Vikas Kanade I know, my father had like 3 LICs and somehow my mom is convinced that LIC is the bedt investment tool so for her sake, I will have to stay invested in it.

[@himanshualive]

R P just to make sure I understood correctly, I should do SIPs in debt funds and once I have significant amount, I should move the funds to equity lumpsum? I don't see how this would work, because if I am looking to do Lumpsum investment in equity, I should do it at a time when markets are not doing good so that I can buy more units, but during this time, debt funds won't give a good return either so probably not the best time to withdraw money. That's why I felt RD as a good option.

[@rameshparekh581]

​@@himanshualive Correct. Incidentally, we find ourselves in the middle of a correction, so now is a good time to deploy lumpsum. If you have money and still convert it into an SIP, that'd be like putting your investment in reverse gear, because as the next rally begins, the stocks become costlier to buy via SIP. Always do SIP into debt funds and avoid buying equities during rallies. Every 5 years there is a major correction and then move the amount from debt to equity. Correction ALWAYS happens like clockwork every 5 years. 1998 > 2003 > 2008 > 2013 > 2018. Since you are going to buy to hold for the long term, buying stocks directly via DEMAT is more beneficial than buying via MF. The 1% expense ratio you pay will cost you lakhs of rupees over 30 years.

[@sutchak]

Interesting video, something that I need to think really hard. Just one question: Is it possible to reduce risk by slowly increasing the debt investment every month with increase in income? And keeping the equity investment every month constant?

[@pattufreefincal]

WHen your net worth increases, you will realize that is not possible

[@RANGANATHANK-tq9hj]

இதையெல்லாம் தமிழில் வெளியிட்டால் மேலும் பலருக்கும் பயனளிக்கும் தயவு செய்து முயற்சிக்கவும். நன்றி

[@lalitchaudhari7941]

Where should we invest then??

[@rajeevrungta6956]

India has changed from small to midcap now it has become largecap

[@amansingh18]

Hard truth. .. thanks sir . Can you pls make a video for debt mutual fund? When to choose a particular type of debt mutual fund... There are hundreds of these types of mutual funds and they are a bit confusing for new investors.

[@pattufreefincal]

Search for past videos.

[@U1vik]

Sir, u are not believing on equity returns and asking to invest 50-60% in equity. Not able to get u. I was very eager to k ow the solution...but looks like problem itself is the solution.....

[@pattufreefincal]

I am not just asking. My portfolio is 60% equity. I am only saying manage risk actively and do not expect returns by doing nothing

[@U1vik]

Could u pls educate me, how to manage risk ? If I invest in equity I would expect returns at least more than FD. Pls tell me, what exactly your point is.

[@pattufreefincal]

@@U1vik Sure. Watch the videos linked in the description box above or towards the end of the above video.

[@makarandvaishnav4536]

Will change equity debt allocation from 70:30 to 50:50 and will consider 0% return from equity even for 15 year away goal to calculate amount to achieve target corpus

[@makarandvaishnav4536]

For the person like me, who is late in equity investment and has good chunk collected in fixed income and regular non changeable investment like EPF is increasingly put into it, how to achieve 50 % equity allocation as investment required will be quite high.

[@RanaKar786]

So what is the 'Take Home' message ... India's growth Story is over ?? U can't invest in Equity even for long term (>12 years) With all due respect Your uploads keep getting a dull Negative shade these days (At least the headlines do). Did you say, "India being on the brink to be a developed Nation"??? The standard of living and Healthcare infra especially in Our villages, Tier 2, 3 & 4 towns seem to have a different story to tell ... We are still at war with primitive diseases like Tuberculosis, Malaria , Cholera etc ..... Switching to preventive mode is a distant dream ..... The Doctor patient ratio or the population to hospital bed ratio is alarmingly embarrassing !!! As our Toilet Revolution continues .... So thinking about our country to be on the verge of being a Developed Country is nothing less than a Joke !

[@ussagar]

Rana Kar bang on!! His views are so uni directional.

[@pran10000]

Buddy 60% of his own net worth is in equity. All he is saying is have a plan thats all..

[@arunnaveenkumar]

Thanks a lot sir :)

[@rajeshboddula3236]

Sir can you please make a video on dividend yield funds.

[@samujjwal]

Small doubt: are you considering debt funds as fixed income or not?

[@rameshparekh581]

From his previous videos : Debt is not fixed income, the coupon rate fluctuates since the bonds are traded in an open market. It's sensitive to interest rate fluctuations, just like equities.

[@samujjwal]

@@rameshparekh581 thanks for the reply. Then I have a doubt as at the end of the video only equity and fixed income is mentioned. Does it mean, no debt funds in portfolio?

[@rameshparekh581]

@@samujjwal Debt funds come under 'fixed income' as per financial terminology. Pattu's point (in earlier video) was that the returns from "fixed income" debt funds are not "fixed", unlike an FD. Debt funds are basically FDs which are traded on the stock market, so the value of that FD fluctuates minute by minute like a stock. For example, if you buy a normal 10 year SBI bank FD that says 7% interest rate, and tomorrow SBI reduces interest rate to 5%, then your FD will still continue to earn 7% for the next 10 years (unlike new FD holders who will get only 5%). If you sell your FD on the bond market, it will sell for a higher premium because of its higher guaranteed returns compared to others. Conversely, if SBI increases FD rates to 8% after you've bought a 7% FD, then your FD will lose value on the bond market. So the adjective "fixed"-income is actually a misnomer. The returns from debt funds are not fixed, they keep fluctuating up and down based on the FD rate of banks (revised every 6 months). It is inversely proportional to the bank rate. If RBI reduces rate, then your debt funds will give you 9-10% returns. If RBI increases rate, then your debt fund will give 2-3% returns because when new bonds are offering a higher return then your FDs (in your debt fund portfolio) becomes less lucrative to other buyers. This constant buying and selling of FDs is what debt funds do. So there's a risk of fluctuation. My take : PPF is the best debt instrument. It saves you tax, and unlike debt MFs, it doesn't have any expense ratio. Try to max out the PPF every year. Basically, if your income is 10L/year, then put 1.5L in PPF and the rest in equity. If you buy debt funds, you ought to know that their returns are not fixed. Many MF sales agents hide this fact, and try to portray debt funds as 'safe'.

[@harirajuav5439]

Is it the same thing with other funds

[@suhasingale]

Is it only me who finds him crazy, weird and irritating?

[@pattufreefincal]

I do too, and you missed, annoying

[@ussagar]

Seemed a personal grudge against MF to me. He was hilarious though.

[@pattufreefincal]

@@ussagar Yes I have personal grudge because 60% of my net worth is in equity mutual. Genius deduction

[@mayurhulsar]

metoo.. ha haa

[@ussagar]

Add some SIPs to your portfolio in good funds and hold it for few years. Then publish your deductions....

[@vinodh3351]

Your explanation is wrong. Mutual fund or stock market money is made on bull market which happens 1 or 2 times every decade other time it is mostly sideways range or decline the one who stays invested for at least a decade can expect 12-15 %.

[@pran10000]

No buddy.. It depends entirely on where the market is when you calculate returns.. That itself is just random chance..

[@RDd188]

It's one of the most Hard to digest reality seen after a while.... By the way What about increasing SIP in a Side ways Market like Today's??

[@pattufreefincal]

You can increase SIP amount each year not just now

[@hsiraj22]

Super ..

[@sakshisureshkumarjetti7310]

friends better stop investing in mutual funds and learn investing stocks.

[@pran10000]

Oh god.. Mutual fund is made up of stocks only🤣

[@sakshisureshkumarjetti7310]

@@pran10000 Expens ratio Regulations Investors not being with fund manager in good n hard times. Etc caps mf returns.these r structural .that's why learn direct equity. Don't i know what are mutual funds ?

[@pran10000]

@@sakshisureshkumarjetti7310 There is something called the index. If you think anybody can buy and sell stocks and beat the index in the long term, there is enough evidence to prove its almost impossible.

[@rameshparekh581]

Is rolling returns the right way to interpret returns for a time period? it shows the volatility of returns but each of those data points basically adds up because the value is getting compounded with each successive year, isn't it?

[@pattufreefincal]

Each rolling return period is unique. Nothing gets added up (I am not averaging anything). It is ONE way to interpret risk and reward.

[@rameshparekh581]

Understood. Question : What kind of debt instrument is most suited to be a lifetime debt component? (ultra short term fund or long term fund)

[@rameshparekh581]

@@ShravanKumarBS Completely agree. I already max out the 2L for PPF and NPS every year. But when one gets some lumpsum cash from equity rebalancing or bonus etc, say you withdraw 4-6 L from selling equity when the markets are overheated, then what type of debt fund to park that money? (is NPS tier 2 (debt) advisable? or should I go for a debt MF)

[@rameshparekh581]

@@ShravanKumarBS Thank you. I'll go with UST funds. Btw, is NPS tier-1 worth it? (it saves me 17k tax every year)

[@rameshparekh581]

@@ShravanKumarBS Yes. I made a voluntary NPS-tier-1 account (corporate debt). What's the harm in using an NPS account as a debt allocation, instead of paying extra expense ratio and getting a debt mutual fund from some AMC?

[@rameshreddy2338]

👏👏👏👏

[@sathishk.c.654]

I would like to change my portfolio ratio of equity- FI from 70-30 to 50-50 after this video. :) Like your scary video 😢

[@dhandapanik5960]

யோவ் பைத்தியக்காரா அப்ப எதுல தாண்டா காச இன்வெஸ்ட் பண்றது

[@Genie890]

Now I am worried about your well being🤔🤔😢😢....if the AMC s find out what you r doing to their "Mutual fund saahi hai" propaganda they r not going to like it...😏and don't call an idiot an idiot coz he/she is not going to like it either..😆😆😆. Personally I like your content and keep trying to get an intuitive feeling for what you r trying to convey.....but mostly people believe that in the long run they will just get lucky...guaranteed🤓🤓🤓👍👍👍

[@pattufreefincal]

ha ha dont worry. My visibility is trivial

[@Genie890]

@@pattufreefincal for the sake of blinded investors like me I hope ur visibility will grow.👍

[@ussagar]

Hahahha 👍🏻👍🏻

[@NareshDama-qv3iu]

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