Why Mutual Funds May Trump Real Estate as An Investment Option?

We Indians are believers in creating assets and leaving it behind for the next generations. Saving up and funding assets is a must, for most Indian families. So, what kind of assets do we look at investing in? In a typical Indian family, it will mostly be gold, real estate (either a plot or a house), and in a rapidly growing crop of people, mutual funds and SIPs as well. So, what prompts our choices and how do we make our asset allocation decisions?

We recently shared our views on the pros and cons of gold as an investment option. So, left with the possibilities of real estate and mutual funds, let’s look at which one to choose and what are the pros and cons.

Initial investment

Many people usually save up for years to purchase a real estate asset as it is never cheap. The initial investment in real estate is always high, and at most times, apart from their entire savings, most buyers also end up taking huge loans. These loans can become a liability in the long run, if not planned for properly. Also, life is full of uncertainties – ill health, loss of job for an earning member, new family commitments, etc. can change the equation overnight.

In contrast, investment in mutual funds can start with as little as even INR 500 or 1000. You could choose to begin a Systematic Investment Plan(SIP) with a small amount per month and slowly build it up into a growing investment. In fact, many people have invested in mutual funds quite early on, from the time they have started earning and made enough profits, to invest in real estate. So, while you may not be able to purchase real estate unless you have lots of money to spare, mutual fund investments can start at an early age, and you need not wait to accumulate your savings.

The Process

Investing in real estate is not an easy process; one has to find the right property, at the right price, at the right time, at the right place. At times, you may have to involve brokers or other such third parties and pay out commissions as well. The property papers must be legally verified, and the due process of registration needs to be completed, which is again a bit cumbersome. In short, it is tedious, fraught with painful procedures.

For investing in mutual funds, however, there are no such hassles. Once you decide the amount you wish to invest, you can quickly start an investment account with your bank and transact online. Your relationship manager at the bank or a trusted financial advisor will help you maximise your returns by growing your money while reducing the risks as much as possible.

The Liquidity Factor

Any investment is made with the intention of growing one’s money and also providing a safety net in tough times. Real estate prices do rise slowly and even accounting for market slumps typically your property value would have gone up. The pain point is liquidity.  If you need money immediately to fund an emergency or new goal, selling your property for the right price promptly is difficult. Here again, the process is long- you need to find genuine buyers, and it takes time for the money to come in hand. In contrast, selling mutual funds is more comfortable, and at most times, the money is back in your account within three working days’ time.

While we all seek the safety and security of owning the roof over our head, do consider first building a growing mutual fund portfolio and then using the earnings to build a dream home.

Which Investment Basket Is Right For You?

Investing money is not the same as saving it up. While savings help you build up cash reserves over time for various needs, investments help the money grow. Indeed, it is possible to make money grow at such a rate that it could become an alternative source of income!

In this article, we discuss the various investment options available, their pros and cons and in which scenario you need to be investing in each of them. Perhaps, you already have a Fixed Deposit or an insurance plan. What you need now is a way to judiciously invest money in order to make it grow. It is time to move from savings to investments.

Here are a few investment options available to you:

Liquid Assets

  1. Fixed Deposits: FDs, as they are better known, are used to store away large amounts of cash in a bank for extended time periods. They are a secure investment and offer guaranteed returns. However, the FRDI bill mandates that a bank’s liability on FDs is only up to INR 1 lakh. Any investments beyond this number could fall into trouble. Hence, it is important to do your research on the banks in which you wish to open an FD, especially in the current scenario of bank frauds and scams.
  2. Insurance: Insurance is a financial asset. Many people are tempted to opt for insurance policies that also have added benefits and assured returns. However, insurance has the lowest returns amongst all options. Hence, it is better to opt for term insurance and not go after policies that sound very lucrative.
  3. Corporate Bonds: When it comes to this investment category, research and prudence on the investor’s part is very important. Depending on your risk appetite, you may choose to go for bonds with a lower rating as they promise higher returns, but we recommend that you stay with AAA rated bonds as much as possible, as the potential risk of a lower rated corporate bond is much higher than the possible returns.
  4. Mutual Funds: MFs are very diverse as far as investments go. MFs can be debt, equity or tax-saving mutual funds. Both debt and tax-saving MFs give a nominal income that is 1-2 percentage points higher than an FD. An SIP can be compared to a recurring deposit, but unlike an RD, it gives on average 17% returns.

Illiquid Assets 

  1. Real Estate: Real estate is not yet an investment asset in India and is meant more for your consumption as a commodity. That said, land often appreciates in value over time so it may be prudent to include some land assets in your investments. Ideally, you need to ‘buy and forget’ for a few years until the land value appreciates. Also, be sure to have all documentation in place for ready reference if the need arises.
  2. Gold: Gold falls somewhere in between being a liquid asset and an illiquid one. For the purpose of this article, we have put it under the illiquid asset class. Gold is both an ornament and an investment. Women are traditionally in favour of gold investments. However, most jewelers do charge several fees over the base price of ornamental gold which in turn may depreciate its value as an investment. If you are investing in gold, know that it takes time to see good returns.

Other Investment Options

 Apart from these options, you can also invest in commodities, currency, futures markets, etc. if you are serious investor who follows the market on a very regular basis and understand when to invest, when to stay put and when to exit.

Cryptocurrency is another investment avenue that is gaining popularity due to the skyrocketing returns it seems to promise. However, the cryptocurrency market needs to be regularized, and it needs to stabilize, before it can go from speculation to an actual investment.

You can also consider being an angel investor. As an angel investor, you invest your money in a growing company for a fixed stake. As the company grows, so does your wealth. Most angel investors choose to invest in a domain they are proficient in, and some investors often involve themselves in the operations of the company the invest in.

Above 3% gain in June 2016.


For the month of June 2016, our markets took a breather from its rally. We had pressures from 2 events which were surprising, Raghuram Rajan exit and BREXIT. While both were shocking, none had any broad based impact on the markets. In BREXIT became an advantage to our markets. Post BREXIT, emerging markets became favorite’s among fund managers & India had an advantage.

In this period of uncertainty our portfolio had an edge. We had a gain of above 3% on our portfolio against the 2.40% gain achieved by the broad based indices.

Good news is that we have achieved this out performance against the benchmarks with only 60% exposure to Equity. Not fully exposed to the market is also an indicator that the markets are in the wait and watch mode yet. Following June and September results, we should see full loading to happen.

SENSEX could manage to be flat for the month, giving a clear indication that front line stocks are yet to show reasonable growth. It is the Midcaps and a selected few among them that are in good strength. Infrastructure sector had begun to show strength; we have about 5% exposure to the Infrastructure, Cement, Construction and Reality sectors. Most of the stocks in this sector have registered good gains.

ARSS Infrastructure has reached 100% gain within 30 days of our investment giving strength to the exposure we have in this sector.

Sugar & Paper along with NBFC’s are the leaders in the current market. Media stocks have shown growth, with the big releases like SULTAN, KABALI etc., to hit the screens this year, the rally here is likely to continue. We have PVR in our portfolio.

Automobile and Pharma exposure in our portfolio is getting considerably reduced. We have used the system rules to move of stocks and the action also eventually coincided with the future developments. There are news that Auto sector is likely to under perform and stocks are getting downgraded. Following the system diligently helps us be in the right sector at the right period and this has largely helped us outperform all the benchmarks.

Look forward to more fireworks in price moves in the coming months.

Stock markets ready for its next euphoric rally


Expectations….expectations. Expectations, towards the end of a Government term which did not have the confidence to decide on any plans that will allow the economy to grow. Expectation on the team that was coming to power, which was aggressive. Expectation on Narendra Modi, who was presumed to be a strong decision maker, as the next Prime Minister. Expectation that, the new government will clear all the infra projects awaiting clearance, which will drive the economy into a robust growth phase.  Indian economy staged a pretty strong recovery and went on to give a robust growth.

Favourable RBI policies, supported by Raghuram Rajan’s strong commitment to revive the Indian economy with his bold decisions on the interest front along with the cleaning up the banking system. His decision to impose curbs on Gold consumption, bring transparency into the Real Estate markets.

Almost all the external factors supported the expected growth. Crude Oil prices crashed, never to see the high’s that it went through. Favourable monsoon, good automobile sales followed by growth in profits of companies in competence. 2014 was a wonderful year for investors as the SENSEX surged more than 40%.

This expectation fizzled out earlier than it was to, things changed. As markets grew leaps and bounds, businesses did not see growth in sales. People began to complain that, “only the stock markets are moving up, money flow is not seen yet. No visible developments in the economy.”  Soon, it was followed by the historical crash of the Chinese markets. Volkswagen case and normal to flat growth from the businesses, markets turned down, went into a tailspin throughout 2015.

After the March quarter results, there are glimpses of change visible. One of the most important factors in the results announced so far is that, sales growth has been still at a slower pace, while profits are showing good growth numbers. Such number growth is possible only if operations are controlled. On one side it is a negative, as controlling operational expenses cannot give continuous growth, it can become counterproductive.

While, on the other side, there are green shoots visible, if the companies who have managed to bring down their expenses, continue to maintain the same tightness on their expenditure and along with that when the sales numbers improve, the profit margins are going to be phenomenal. And that would mean a euphoric rally in stock prices.

As many analysts say on the media, “we are in a cusp of a great bull market” the future looks very attractive for India. It is time to give more exposure to Equity investments. For those who have missed the 2014 rally, now there is an even bigger price move waiting to happen. Those who have maintained a wait and watch on their stock investments, now it is the right time to begin investing. One can even think of adding to their existing investments. Those of you who had stopped their SIP’s or had moved to the debt markets for safety of capital can now think of venturing into the Equities segment to have very good gains.

If things pan out well, we might witness a rally in stock prices, which we had not seen so far in the Indian Stock market history. The next 5 years are going to be a boon to all those investors who venture into the markets.

Take advantage of the markets next move; at the early stage itself, waiting for more confirmation will only result in lost opportunities.

Portfolio performance April 2016


When a person invests his earnings be it in any asset class, either Real Estate, Fixed Deposits, Gold, Mutual Funds or Stocks, the one single minded approach here would be to beat the benchmark or how is my investment doing against its peers?

Whatever be the condition, all of us want to be the best, the same holds good with investments too. We should be making the best returns when compared to others. If we find that our investments are giving double the returns against other assets, there is full of joy. If we find that we are marginally above the benchmark, say the SENSEX is 10% and we are 11%, still we are happy, because we are outperforming.

Suppose we find that we are negative to the benchmark, say the SENSEX is 10% and we are 9%. There is worry and it is good too, because, this is the condition where thinking process comes to play. Should I hold on or shift my investments? In most of the situations where there is below average growth in investments, people have missed to observe and take action of this condition, where, the investment is under-performing and they have not taken action.

To help our clients know how their investments are performing against the SENSEX or NIFTY, we have begun an initiative to report the performance of our portfolio against that of NIFTY every fortnight, with details about what is right and wrong. It will be of help to our investors to know if the money is safe and give confidence about the future.

From the time that we have been tracking the performance of our portfolio since December 2012, our portfolio has managed to have 61% profits against the NIFTY returns of 33%. We had an advantage as our portfolio consisted of strong growth stocks. As we come to the shorter periods, in the last 1 year, our portfolio was positive with a near 1% profit where the SENSEX had lost 5.63%.

Whereas on the last 6 months and 3 months period, we are trailing the benchmark, the reason behind the underperformance is that, most of the stocks in our portfolio were exited following the market weakness in December and January 2016. After the sell out that our markets had, which was overdone following the Global slowdown, our exposure in the markets were down to less than 15%. Cash was moved to debt funds to protect the account from any further weakness.

On a normal process, stocks move in and out based on their fundamental strength, now that our portfolio has exited almost all its holdings, it will take a couple of quarters to load stocks to it, from the sectors that show renewed strength.

Till the September results are out, markets are likely to be range bound while adding a couple of stronger stocks, that show strength on their earnings.

Start-ups – The impact on our economy.

About to BloomStart-ups have become the word of mouth of almost every person in town, at least in Bangalore which has become the hub of activity for new ideas. Students coming out of college come with a dream, ‘work for a couple of months, along with that work to become a start-up entrepreneur’. With so much activity, thoughts and money flowing into this segment, how good is this Start-up culture for our economy?

In the past 2 decades tech employees had the advantage of getting paid more than they could dream off, apart from the luxuries and indulgences which they experienced, which brought our economy fame & money along with cultural shift, they still had a lot of money un-used, which got poured into real estate, people bought 3 homes, more number of cars. Culture had such a dramatic shift that it is said in some segments of our country, the “K” in BHK is being taken off, apartments are sold as 2BH, 3BH etc., because cooking has become a past thought, eating out is the way of life today.

Now with real estate taking a back seat, where phenomenal returns are also a past history, the excess money that got saved by these Hi-flying tech employees has now got channelled itself into the economy in form of Start-up funding. The start-up industry is so lucrative, that few of them among the lots of thoughts and ideas that are in the market and would come in the future is going to become a Google or a Facebook, which makes the wealthy individuals take a bigger bet even at risks that does not have any fundamentals. Each one offering to fund at higher and higher valuations which none would have dreamt off.

Most of the start-ups today are loss making, for example – one of the top stories of India, Flipkart has declared a loss of 2000 plus crores in FY 2015 on sales of 10000 plus crores, and they are still boasting that they have tripled their turnover from 2800 crores last year, while the losses too have nearly tripled in the same period. Why so much losses and whose money is it that is making its rounds here?

The losses are mainly due to discounts allowed on product sales to capture market share & employee cost. If this company has lost 2700 crores in the last 2 years, how are they going to recover these loses, what is their capital? If the losses continue at the same pace, next year the total loss should be 15000 crores.

Why is this done?

To have analytics numbers that shows they are market leaders and when the company launches its IPO, poor investors will throng to buy the company’s stock. And why is this required?

Only then can the wealthy investors who have pumped in money into the company with very high dreams, make big profits.

It is a like this, I am a fool to make an investment into a loss making company, while I am confident that I will find an even bigger fool to whom I will offload and make my profits. The final losers will be the general public who are expected to invest into the IPO’s of these businesses.

Employee cost is another area where these start-ups are exorbitantly high, every student joining his or her higher education, when asked about their ambition, have only one company in their mind, “FLIPKART”.

The fight to have the best talent has become so severe that employees are getting paid in crores along with super lenient employment rules; they get paid holidays for every other silly reason. How can they be productive for the company? That is the requirement now, just that I need to have the best talent, keep them so happy that, if they just stay with the company, the competitor will lose his edge to become more competitive. Same like killing the brick and mortar businesses through massive discounts, this employee hoarding is one more method.

There are so many similar businesses offering the same services and still get funded. Most of them, many users have begun to complain of poor quality in their services. Pepper Tap, Swiggy, Tiny Owl and many others have already been in the news for poor quality of products and services.

The next target on sales for Flipkart is 10 billion dollars for FY16, which will be 65000 crores. One of India’s top FMCG company ITC, a century old company having presence in various segments of the economy, having brands that have prominent place in the country’s population has a turnover of close to 40000 Crores and is reporting a profit of close to 10000 crores. This company is 100 years old. If 2016 sales is going to be 65K crores for Flipkart, even at a modest 1 multiple growth it should have a sales number of 130K crores in 2017, which means every citizen of India buys product worth a Rupee from Flipkart, can this be a reality?

And this numbers are only for Flipkart, while there so many similar businesses looking to have equivalent growth or at least that is what the investors in them are expecting them to do.

All of it shows one clear sign; it is bad that we have got the hint of it so early in a period where Indian economy is pegged to be the world’s best destination for investment at the moment. The start-up bubble is going to get burst far earlier that it is anticipated to.


Let’s look at why the start-up funding is required? The thought of start-up funding is to support a business that is just in a thought stage, which requires huge funds before it can even launch its products or services, while it does not have a good revenue of its own yet, to payback for the financial support. Due to which the business cannot get funded by the banks in the traditional way and no bank will fund a loss making company. To get such kind of financial support the investor is given a small stake in the company, so that, he stays in wait till the business begins to generate revenues and the company gets listed through an IPO, where the investor gets his exit route by offloading his holdings in the company to the new investors. In some cases the new investor comes in the form of another venture capitalist, who pays a higher price and buys the same stake from the existing investor. Whatever is the level of entry the final exit route for these investors is through the Equity markets?

Now, it gets a little clear, as to why there is so much awareness getting created about the start-up companies in the form of discounts, publicity and sponsorships. Only then will the name be registered in the minds of common investors, who by then will be craving to have a share of this investment frenzy. Off late I have been getting one out of every 20 investment suggestion requests on how a small investor can participate in the OLA or a Big Basket.

At present it is not at all easy for the common man to invest in start-ups, while soon when the IPO is launched all these aspiring investors will throng to get a pie and that is good enough for the company to issue its shares at a mind boggling premium.


Promoters or in these cases the founder or the conceiver of the idea, how much does he make from his idea finally.

The other day it was published on the newspapers that Big Basket has got 800 Crores of funding, this follows the recent 300 crore funding the company had received. With some number crunching it is assumed that the original promoters or founders will have about 20-25% of the equity in the company after about 3 or 4 rounds of funding. In Flipkart it is said that the Bansals hold 7.50% stake in the company. All the rest of the stake is sold at lower valuations, while the advantage they have again is the hefty salaries the founders get after giving away their stake in the company.

A start-up conceives the idea, sells 30% of the company without even knowing how much he is worth, further to that if the idea looks to be interesting, funding keeps happening and he keeps losing stake, he never gets any benefit from the funds that comes in, while his salary and investor commitment makes him stick to the company.

A question I got to answer recently from an aspiring startup….

“How do you decide how many shares to offer in a company, and how do you determine the price per share?


Can you please tell me what to do in this case?


If a company has 1mn Rs (INR) as paid up capital. Now if this company is getting fund from foreign let’s say $100,000. Now, how to price per share. What other things I should keep my eye on. If you can point me to the right direction that would be of great help.”


At the end of the tunnel if the public issue of the company gets blown out, finished, the founder has peanuts from the company. The sad part is that the founders of these start-up companies don’t invest their earnings in a different asset. All the big salaries they earn are again pumped into funding similar start-ups down the line. How many of these businesses will reach the end of the tunnel is anybody’s guess.


The present start-up mind-set.

The other day I happened to be in a conference organized by one of the start-ups. The program was to promote a training product for new entrepreneurs. The program will teach about how to become a successful entrepreneur in 15 weeks and it charges 50k for the course. Even if 100 aspiring entrepreneurs take up the course, the company makes 50 lakhs, and from there even if they grow 10X, which is a normal reach these businesses have at least in the beginning, they are looking at about 5 plus crores of business. Whether they make profit or not in this business, these statistics will be good enough to sell the company for a couple of 100 crores and exit. Once the start-up euphoria dies, this business will also go down, while who cares, the founders or the investors who took the initial stake make a killing.

In that conference during the question hour, a girl asked this question. “How early can a start-up make its exit?”

The moderator asked, “Of all the reasons, why do you want to exit your business? Is that the reason for which you want to become an entrepreneur?”

Then the girl says, “At least that is what the serial entrepreneurs want, exit at the earliest.”

Then the next question from the moderator, “Who is this serial entrepreneur? I have heard only about serial killers, who kill every other day. Do these serial entrepreneurs too, do the same, kill businesses?”

Looks like it is true to some extent, kill the business and move on to the new one? In reality they are killing businesses. They fund some one’s idea, take it to a high level and get out, then go out finding another such opportunity. How many great opportunities can a fund find on a regular basis? For the fund that looks for early and smart exits it will for sure find opportunities on a regular basis because it is said that India will have about 11500 start-ups by the turn of the decade, of which about 2-3% will reach the IPO Stage. So, for the later investor, there is going to be only about 20 to 30 companies that will give good growth on the capital invested, which are those companies? At present those companies may or may have not even been conceived.

After a business gets funded, the founder becomes a slave; he does not have any other task in his life, no family, no vacation and at times even no time to take care of himself, apart from slogging it out to meet the super-fast valuations the investors want from the company. Just about the time the founder losses all his stuff on the ideas about the business the investor takes exit by off-loading his stake to an investor who comes in at an even higher valuation. The new investor comes in with expectations to crush the founders even further, of their ideas. Where the steam left is much lower and the business goes down. Already there are many cases of new start-ups finding it difficult to get next level of funding and are closing down operations.


One of the Venture capital firm’s head had recently disclosed about the prevailing thought among the new entrepreneurs. A real experience she had recently.


A student just out of college comes up with an idea and approaches a VC for funding and requests to have $ 1 million, when he was told that his idea could not be funded. His reaction is that, “Ok, I will find a new idea that can be funded.”

People are approaching the idea of funding in a different manner and not in the real sense of having a business. They think that they can pop up ideas on the go, get the funding, sell the business and look for a new idea. There is no passion on the idea to make it a big business, they just want to come up with an idea that they think is the pain point in the economy, find an investor who can fund the idea, sell the business to them and move out to get a fresh idea. Is that so easy to get an idea, make it into a business and get out making a killing out of the idea? It never was and will not be so anytime in the future.

The benefits this start-up culture will bring to our country.

At present India is the number one investment destination, the most sort after by all the investment communities around the globe. Start-up is one of the lucrative activities which are expected to be worth pushing huge capital. The benefits from this frenzy are tremendous. Whether the investors will make it big or not is unknown for now, while there is going to be a lot of opportunity for the citizens of India from this Start-up euphoria in the country.

Some areas which can benefit are employment, a real lot of employment opportunities are going to be generated and the salaries are going to be unrealistic for the talented ones, money flow will be high. Media will get tremendous business due to advertisements and promotions, infrastructure will grow rapidly and above all the Indian citizen will benefit the most. Commercial as well as residential real estate will sky rocket as there will be a lot of disposable income in the hands of the public and the companies will gobble office space. Assume that each of the business gets a minimum funding of 100 Crores, 11500 companies would mean that we will have about 12 lakh crores of funds moving in India in the next 5 years. It is 2.50 times the total sales of Indian Oil Corporation, the company with the highest revenue in our country. Taken by the numbers that these companies loose in the form of discounts to capture market share, which is at 20% now, it means the Indian public has a chance to get 2.40 lakh crores of money. The distribution of funds is going to be very big; our economy will thrive due to this flow of funds. As most of these investments will be in the technology space, the country will become a super developed one by the turn of the decade.

If a person has to be smart, he should just consume all the discounts and be pretty sure to not invest into the IPO’s of these loss making IMG_2672businesses once they hit the markets. Need not worry about the losses these business are going to make once the bubble gets burst, after all whose money is it. It is the excess money that the ultra-wealthy investors who have become rich overnight not knowing where to park the money, that is being thrown into our economy in the name of capturing market share and building numbers in the thought that they can fool the common investor through the IPO and make a killing.

By the turn of the decade when the bubble is burst, India will be super rich as all of its infrastructure will be world class and its people having a wonderful life, while the losers will be the super-rich who will not mind the losses because after all it is the money that is in real excess for them. We will be witness to one of the classic cases of wealth distribution happening in the next five years. Enjoy the run and get rich.