Strategy for Mutual Fund Selection ? Where to Invest : US Stocks or Indian Stocks/ Gold ? Alok Jain

Added: 2026-05-30

[00:00:01]Hi folks, welcome to the weekend investing ask weekend investing round.

[00:00:05]Uh here in this series we do Q&A session. We take up queries that have been posted to us on emails in YouTube channels uh on our Twitter page uh and anywhere else where queries may have been raised. We try to answer all of them the best of our abilities. And this is a great sort of knowledge based session where you know we've done 90 rounds of questions before this and if you wish to go through uh them I mean there's a lot of information and knowledge in those video series certainly better than when you're watching Netflix. Uh so 1200 queries are already answered all the videos are enclosed the link is there in the description. Um and hence uh this is a great sort of knowledge base that you can go to. Let's dive into question 121.

[00:00:59]says you talked about momentum strategy for selecting stock basket. Can there be a similar strategy for creating a portfolio of mutual funds? Yes, of course. um strategies can be used for relative momentum between momentum between mutual fund units and uh we are certainly working on some such uh strategies in case we do find uh you know significant alpha creation we will certainly launch them in times to come.

[00:01:26]Right now it is perhaps too early to uh put any time frame on this but yes this is a uh potential research project for us.

[00:01:35]Question 122. Now this was in reference to this video that we posted. Uh Sunonny Brah says Japan went into long-term consolidation because it was already a mature and developed market. India is not yet developed so markets are not mature. However, current price action does suggest a possibility of longer consolidation. But with rupee weakening against the dollar, the market may still adjust by moving upwards in nominal term. Though the data point shared by you in previous session suggest upward move, but that might be an adjustment for the dollar strength and inflation rather than for strong real growth. So yeah, I agree with you. Uh I mean we we are going to see I think globally a a a phenomena of higher inflation and higher sort of nominal uh returns but in real terms basis there will be a lot of stagnation in most markets. Perhaps we will continue to grow at a you know at a snail space as well. But the the idea here is that because the money base and the monetary base is moving very rapidly and in double digits per year percentage change. So asset prices cannot remain stagnant for too long at least not in nominal terms. So from that perspective we are very very far away from a Japan-like situation. You are very right. But it is not impossible to think that you know we cannot do the same in let's say 10 years 20 years so on so forth. China has been a prime example of that where despite phenomenal growth in the last 10 years their markets have not gone anywhere. So trying to link market performance to you know on ground growth can really lead to a lot of mishaps uh in the markets.

[00:03:16]Next question is do you skip entering into stocks that currently have good momentum but in the past have corrected massively due to governance issues or fraud or have lost significant value like in the case of Yes Bank or Vodafone ID. So unless there is a red flag on the stock right now uh you know that it is under some surveillance some observation um just because it has dropped significantly in the past is not a filter that we use because see we we we we did well in Suzlon we did well in uh several stocks that have had a past history um that should not determine whether you are going to take it or not. Um in fact there are you know enough case studies that you know stocks uh managements and their entire restructuring can happen over time and they can just be you know the name is the same but the entire game has changed. So unless there is a overhang of a regulatory or surveillance kind of a situation and of course if it is not lending itself to the market cap that we want or the liquidity that we require then of course we will uh bypass that but not as says this is a hypothetical question regarding large profits 1 cr for a 20 stock portfolio requiring 10 stocks to be rebalanced in a given month a total turnover of 1 cr 15 lakh sell and 50 lakh buy incurs about 15,000 000 to 20,000 in ST brokerage and other strategy charges in a monthly momentum or rotating rebalance strategy. These friction costs repeat frequently. Can this drag significantly long-term compounding and eat up strategy alpha?

[00:04:51]How do large portfolio managers mitigate this churn impact?

[00:04:55]So there is no doubt that churn will attract cost.

[00:05:02]The balance is that whether the strategy can generate enough alpha to and be and and still absorb all this cost and still be uh you know net plus+ from your benchmark. that is the uh sort of underlying um hypothesis and I think a lot of worry has been built around costs and several times I have actually done calculations and shown that these costs are not as material as they are thought out to be.

[00:05:36]Most strategies will churn maybe three to five times in a year. So for 20 stock strategies there even if I say five times it means 100 transactions 100 transactions at 0.125% ST plus minor uh other charges will perhaps just about be the same as the dividend that you are going to get out of it. It's not more than that not significantly more than that. And there could be strategies which are slower which only have let's say a churn of two times. So the taxation part is different. This is different.

[00:06:19]The taxation part also I've shown several times. If your strategy can deliver a even if a couple of percentage points more than any fund, ETF etc. that the taxation of short-term capital gain also does not hurt you.

[00:06:37]So from all these perspectives if the core strategy is strong enough to deliver you know the alpha that it it it it tries to deliver uh then there is no issue. uh large portfolio managers have a problem as I have alluded to many times. You would have seen many small funds when they become large they start to stagnate and I don't want to name any but there is a live example going on right now in couple of funds also there was a fantastic example few years back of the large one of the largest funds who just went stagnant for five seven years because when you get so much aum and this is a aum gathering industry everybody wants more AUM because they can get more management fee or whatever on that very few select ethical managers will say that my strategy cannot absorb more than this capital so I'm not taking more than this capital few instances have been there where I think uh some small cap fund had stopped new inflows that is good good management practice um at times we have also done that in our small cases uh where we felt a lot of aum has already come in um so a manager needs to be aware and be sensitive about how much money can he ride on his strategy without disturbing the outcome of it. By disturbing the outcome of it, I can go virtually unlimited times. But if I'm looking at you know making benchmark plus x percentage and then you know because my aum grid is so much that that x becomes/ x or 1/4x then there is a problem of whether the portfolio manager's interests are aligned with the end user or not. So those issues are there and I would wish more managers would you know pay more attention to this and uh and and the only way where you know if the AUM is not controlled then you have to go with lower ch you have to go with longerterm strategies you can't be nimblefooted or you will get caught by the market several times so those accidents will happen next question is from Nitish is there is there any other platform like small case across India and globally. So there used to be a couple in India but they I think have died down. They have not survived.

[00:09:05]In the US they have some platforms which mirror the transactions of a uh of a leader. So you can create an account and anybody else can follow you.

[00:09:20]Whatever trades you will do, everybody else will also be able to do those trades. In India, the regulation does not allow all that. So, uh these kind of mirroring platforms are not possible.

[00:09:31]But small case certainly is a very unique platform, successful platform and a lot of folks have done uh uh wonders with their investing through that. It's basically a common man's um you can say PMS that is available to you where you even if you don't have 50 lakhs to put up but you still have access to a manager. You can still talk to them, you can understand their uh strategies, you can have one-on-one queries which is not possible in a fund. Basically, in a fund, you are basically a dot in a big ocean. You can't even access the manager there. A lot of times I I feel very uh uh it's amusing to me that you know folks have put up so much money in certain funds they don't even know who the fund manager is. It's just because certain brand has launched that fund. Uh they will go with that and even if in the background the fund manager is changing they are bringing in a 35 year old in in place of a 65 year old experienced person you I mean people don't even bother about what is happening in the background because the narrative is so strong that you know nothing will happen to your money sub.

[00:10:41]So yeah, I mean from that's that's sort of the view on that. Um the prospects are good. There's no doubt about it. Um last I think small case has been on now for almost 8 years. We were the first managers from small case. Uh I would I would say it's it's revolutionary to some extent in the in the sense that you are able to have a process which is well defined which is transparent which is right there. your stocks are with you.

[00:11:11]There is no safety issue. You can you can stop your investment real time basis. Um so the advantages are plentiful in my view.

[00:11:22]Manov says why does the regulators not introduce fractional shares in Indian market if it's just a mathematical implementation? Is liquidity the issue?

[00:11:29]So good question. I think several times this question has been raised to the regulator and perhaps some consultation paper was also there regarding this.

[00:11:39]Maybe the and I'm just guessing here uh maybe the ecosystem is not ready for this kind of a situation where um you know the per unit costs like right now also we have significant cost of a transaction. First we need to bring that cost down and then increase the number of transactions. So right now if somebody is buying or selling one share also they are hit with a you know a 20 rupee or a 15 rupee demat charge they they are hit with exchange charges se turnover fees uh all kinds of uh ancillary costs are there securities transaction tax etc. These should come down first in my view.

[00:12:24]It should become a frictionless system like the rest of the world. I mean if other markets are able to execute this, why are we not able to execute it? That is the first question because an efficient more efficient market uh perhaps is the first step towards going towards fractional which requires a lot of efficiency. Just imagine if you're buying 0.1 share of uh of a 10 rupee stock and you're selling it tomorrow and the cost is like you know five times the amount that you've bought or sold then it doesn't work. So perhaps that is the reason but I'm just guessing there.

[00:13:02]Su Subuanker says being a retired professional with the initial seed fund of 7 lakhs I wish to get consistent monthly earnings of 30 40,000 from momentum trading. How do I do it sir?

[00:13:12]You cannot do it. I am very sorry to break this uh news to anybody who thinks the markets can give you consistent returns. Please look elsewhere. This is not the place. It is almost like uh saying that you know I want to buy a marauti but you know it should run at 300 km an hour. The expectation and the product does not match.

[00:13:39]Equities are by nature uh lumpy returns kind of a markets to get consistent monthly returns is only possible if you do a systematic withdrawal kind of a thing. So if you were to let's say put up 50 lakh rupees and expect I'll draw 30,000 rupees from that every month perhaps that can still work but on 7 lakh rupees to draw 40,000 rupees consistently on monthly it will not be possible.

[00:14:08]Uh we do um offer research products but we don't advise you individually on what you should be doing because that is not part of our license. We have a sister concern which runs a alternate investment fund.

[00:14:25]There the minimum um ticket size is 1 cr and above as per se roots.

[00:14:33]Another question from our video um please guide do we need to invest in US stocks indexes or as well or gold and Indian equity would do also if the answer is yes what are the restrictions for government employees and what issues can come and how to resolve that. So I don't think there is any issue regarding your profession in this whether you're government employee or your private employee. If your department has some disclosure issues then that I'm not aware of but other than that the liber liberalized remittance scheme is open to all citizens of India and using that you can legitimately send $250,000 per year per head uh to do your investing. Now I'm not talking trading or leveraging just investing. And for most people the added headache of managing you know the TCS the uh income tax calculations on overseas stocks disclosing them here. Uh it is not perhaps will make sense if your ticket size is small. If you are a large HNI then yes that should be done or if you are if you think your progression is towards that then it should be done but for smaller retail investors perhaps u that is not so convenient uh to do. Um but from a restrictions point of view there are no restrictions and one ideally should invest some part in in uh other markets also.

[00:16:07]Vive says, "Can you please do a daily bite on this product?" So, we I think we have already done that. Uh there's a link in the description. Uh you can go there. Is there a plan to move out of gold ETF to this new gold tracking product EGR in Mi Green once there is liquidity in this product? So, let's see when that liquidity comes through, how much liquidity is there? What are the uh you know uh dynamics of that product once it gets going? Right now it is in a infancy stage. Uh on the NSC on the BSC also they had launched AEGR few years back which basically did not attract any volumes. So conceptually it is a good product but a good product also needs liquidity and once liquidity is there and substantially there then I don't think there will be any reason to not move to this product because it is going to be a cheaper and a more I would say perhaps more secure product also wherein a semi-regulated walting system is there wherein a a storage cost is transparent available up front wherein a option is there to take physical delivery of your gold. Uh so those product features are amazing but uh whether it will become reality or not will depend upon that.

[00:17:30]Mun says did you have a chance to hear new fed chair? So I guess you're talking about Kevin Walsh. If he goes ahead with his plan and let markets rerate the commodities but not printing more money yet will sore but neither increase interest rates the gold will skyrocket.

[00:17:45]So right now everybody's guessing what he will do but the poor guy I mean he has come in at a situation where he's not left with too many options.

[00:17:59]Cutting off interest rates is going to be very very difficult right now. Um the market yield is going up. uh inflation is ticking up. Uh it'll be a disaster if he cuts interest rates right now.

[00:18:11]Inflation will skyrocket. U so the what some experts are also pointing out that perhaps to pander to the audience um they may do some marginal interest rate hikes but yet at the same time draw out some large u stimulus packages.

[00:18:33]Um midterm elections are also coming near and perhaps the president will also be pushing on the Fed to to give out more dos. Uh so perhaps some kind of a not calling it QE but some something of that nature which injects liquidity into the system yet at the same time show trying to show that I'm increasing interest rates is the likely way forward in my mind.

[00:19:00]um it certainly will not help. It will certainly make gold go to 6,000 and above. Um it'll also help the stock markets rise. So we also need to understand that there is no free lunch in the world. You cannot keep printing money and and think that nothing will happen forever. Right now US is looking at a $3 trillion fiscal deficit. I think the economy is like 25 or 30 trillion. 10% is the fiscal deficit in India at 4.7% we are shaking in the budget you know 4.7 4.8 8 now and there they are least bothered 10%.

[00:19:41]So the world is a very funny place right now and you know the situation will come back and bite the US in a very big way at some point of time. Of course it'll have repercussions for rest of the world also. It's not that US goes down and nothing else goes down with it. So it's going to be a very very tricky next few decades. I I I I suppose the easy days of uh you know a nice the 1980s till till till till till about 2008 was the sort of golden years but uh um it's going to be a tough one.

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