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The Mutual Fund Show: Lessons Investors Should Remember In 2019-20

The financial year 2018-19 has been nothing short of a roller-coaster ride for the Rs 24-lakh-crore mutual fund industry. The year started with the implementation of a tax on long-term equity gains and the market regulator getting stringent on transparency with measures such as putting a cap on total expense ratio and classification of various schemes. Volatility in market and concerns surrounding payment defaults at IL&FS only left debt fund investors worried about their money.

Going into the new fiscal starting April, is it advisable to consider a systematic investment plan in small caps given the recent under-performance? Are large-cap mutual funds still worth the expense ratio cost? Which is the best option in mid-cap ETF or mid-cap index fund?

Gajendra Kothari, managing director at Etica Wealth Management, and Tarun Birani, founder and chief executive officer at, addressed some of these queries and more on BloombergQuint’s weekly series The Mutual Fund Show.

Will infrastructure be a good theme to bet on because of the fact that the Narendra Modi-led government is likely to come back into power? If yes, what are the funds that you would recommend? If not, what are some of the other sector funds that you would recommend to get good returns which could easily beat the benchmark?

Gajendra Kothari: My recommendation would be to stay away from sector funds. For the last eight years, I have been an infrastructure fund holder and my eight-year annualised return is 6 percent. When I invested eight years ago, it looked very attractive because it has fallen down after 2008 meltdown. Never make investment decisions based on what the government announces. The government may change policies and you may get stuck.

For a retail investor, we suggest you stay away from thematic funds and let the fund manager take a call. If you are in a diversified fund, and the fund manager thinks there is a future in infrastructure stocks right now, then he can take a 25 percent exposure. But, as a retail investor, you don’t know when to get in and out because these all tend to be cyclical. It is better to stay away from these kinds of funds. I would recommend you stick to multi-cap funds. It is a great long-term bet.

Tarun Birani: In the last 10 years, average returns of infrastructure fund is CAGR of 12 percent. The average large-cap fund category has given 18 percent. A mid-cap category has given 22 percent. So, the risk you take in getting into infrastructure is close to 20-25 percent standard deviation kind of risk that you build in. Compared to that, mid caps also take a similar kind of risk. But look at the risk-reward ratio. Infrastructure as a theme is available in most large- and mid-cap funds. It does not make sense at this point and they have not delivered. You don’t have any history to track it.

One has invested in CPSE-ETF and Bharat 22 ETF. They don’t seem to be generating returns. Should one exit or hang on?

Gajendra Kothari: I would recommend one should exit because these are government-driven. A lot depends on policies. If the government changes, then we don’t know what new policies will come. So, it is better to stay away from such things. Stick to a multi-cap fund. Fund manager can take a call whether public, private or what mix.

Tarun Birani: I agree with Gajendra.

To know more, watch the full episode here:

Also read: The Mutual Fund Show: Should You Invest In A Smart Beta Fund?