Should you look at an AIF, Pms or even a direct equity portfolio over and above your mutual fund portfolio?

Do you need to? I do not know, but I do guess that there is a place for everything in one’s life. Let us examine all the options.

Look at direct equities. Unless you have professional help do not even try trading in direct equities. It looks very simple, but it is very very difficult to be a part time trader. So let us talk about investing. It is not very difficult. In life if you start investing at the age of 26 and continue to invest till your age of 66, it means you have 40 years. In 40 years you need to buy and hold about 25 shares. This means you need to buy one share every 15 months. This should not be too difficult. If you have a mutual fund portfolio it makes no sense for you to buy big companies like Reliance, Hdfc, Hdfc bank,….which are the easy picks! Anyway your portfolio will have all these shares anyway – so there has to be a good strategy to build your portfolio. In the past buying and holding extremely expensive shares like PnG, Nestle, Colgate, Hul worked. Does it mean it will work in the future? Should you buy Page Industries now and hope that in the next 20 years it will do what it did in the past 20 years? I am not sure that will work, though I know people who believe such a passive strategy with good shares will work. This of course is called survivor bias! Be careful, that is all I can say. Buying PnG, ITC, Nestle, and Hul and waiting for 20 years is a strategy that will SURELY NOT WORK. Go figure out why.

AIF – a couple of friends have started one, and a few investors I know are happy with the last 1 year performance. Here the fund manager gets a chance to dramatically alter his portfolio – he can take concentrated bets. He can ignore Hdfc and Reliance and convince you that he is building a portfolio of the future – not one of the past. He can ignore very high PE stocks telling you that one day the ‘regression to mean’ will happen.

I am all for PMS if you find a good manager who will sit and talk to you and you are willing to commit Rs. 300L to that fund manager. Remember he is doing it for a fee, and investing Rs. 25L makes no sense for him. So if he is making Rs. 25000 from you in a year, he will give you exactly 30 seconds if you wish to meet him. Of course if you have a good adviser who is mobilising a lot of money in PMS, chances are that you will get some attention.

So if you have a networth of Rs. 15 crores – I mean investing amount of Rs. 15 crores, I can find the need (and benefit) for mutual funds, direct equity, PMS and perhaps an AIF, if you find the right manager. However if your portfolio is worth less than Rs. 7 crores (1 Million US $) you should stick to mutual funds – 5 funds, maybe in 2 fund houses, and that should be enough.

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  1. “Buying PnG, ITC, Nestle, and Hul and waiting for 20 years is a strategy that will SURELY NOT WORK. Go figure out why.”

    Just keen to know why the above strategy will work.?

  2. Another nugget of wisdom. This line was a revelation ‘Remember he is doing it for a fee, and investing Rs. 25L makes no sense for him.’

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