Mutual Funds are a great way to build wealth. Individuals are able to successfully retire through this. .
. and can meet all their desires. But, we don't know what it means?
And even If someone explains it to us. . .
They can take advantage of our half baked knowledge and manipulate us, because. . .
No one will teach you free of cost! If a distributor visits your house and explains the concepts with extreme patience. .
. The reason would be that he will get a lifelong commission, with your investment. Nothing wrong with it.
If he gives good advice. But that is still advice. But I can't offer you advice.
I can't anyway. Instead, I will make you capable. Welcome to 'Minutes of Mutual Funds' - a comprehensive in-depth course.
which you can opt free of cost and become intelligent. And you can learn to invest your own money. I am not a SEBI-registered Investment Advisor or Research Analyst.
And I am very happy to transparently disclose my incentives to you. This video is sponsored by tickertape. More on them later.
My name is Money Minded Mandeep. Welcome back to the channel. Let's go!
Let us start from the beginning and cover everything. How equity builds wealth? Let's understand this with an example.
Rahul wanted to start a burger joint. The name would be 'Anadi Burgers'. But, there is only one problem.
He needs an investment worth Rs 1 Cr. And we have the solution too. So, If I, Mandy were to invest Rs 40 lakhs in the 1 Cr business.
So the 40% ownership of the business would be mine. Rahul will also have 40% ownership. And Rohan and RJ will each have 10% ownership.
This ownership word is too middle-class. We will call this 'equity' or 'stock' from now on. It means, the equity of 'Anadi Burgers' would be Rs 1 crore.
And 40% equity, i. e. ownership of Rs 40 lakhs will be mine.
Or we can also say that the total stock is of Rs 1 Crore. In which, I own 40% stake. Stock or equity means company's ownership.
And stake means what percentage I possess of the ownership. Presume that Rahul. .
. in regards to his business investment. .
. wouldn't have got a wealthy party like us. And he would have to collect donations from villagers.
I only have Rs 1,500 with me. Will that work? I can give you Rs 150.
I will be back. So to solve this small problem. Rahul divided his equity/ stock worth Rs 1 crore into small segments of 10 lakhs.
By doing this, the value of one segment would be Rs 10. And what do you call a segment in English? - A share.
It means that the stock of Rs 1 crore has been divided into 10 lakh shares. Now If someone were to tell me that they have 10 stocks of Reliance. So correct them and state that, "You own only 1 stock of Reliance.
. . You will have 10 shares of that stock.
" "I would sooner die. . than give her one share of stock in McDonalds.
" Back to our story. If a stock worth Rs 1 crore is divided into 10 lakh segments, i. e.
10 lakh shares. And the value of 1 share is Rs 10. Technically, an investor can invest in Rahul's business by just investing Rs 10.
And in return, he will get one share. This investor in a total stock of Rs 1 crore, took ownership of Rs 10. It means this person has a stake of 0.
0001%. But let's go back a little. Rahul already had a wealthy partner, i.
e, I, Rohan and RJ. I invested Rs 40 lakhs. The price of one share was Rs 10.
So I received shares worth 4 lakhs. Rahul will also have 4 lakh shares. Rohan and RJ will have 10 lakh shares each.
We all have been 'holding' these shares. Hence we become 'shareholders'. Anadi Burgers became successful after 5 years.
. . and started earning profit worth 50 lakhs each year.
And then a new entrepreneur enters into the market. Nivedan, the founder of 'Khiladi Burgers'. And he wants to purchase 'Anadi Burgers'.
And because Anadi Burgers doesn't have one, but four shareholders. Lets say all four of us agree that we have to sell Anadi Burgers. And we nominate Rahul for negotiations.
- Rs 50 lakhs. - Rs 50 lakhs? Ok.
- Are you planning to sell the company for Rs 50 lakhs? - Go again. Rs 1 crore.
Don't waste my time. Rs 5 Crore. Take it or leave it.
Now there are two parties here. Seller and buyer. Seller is thinking that I can get all the profit of the next 10 years, today.
Otherwise, I'll have to work for the next 10 years to earn this profit. So why shouldn't I sell this company? And retire with the money I receive or work on something else.
Whereas, the buyer is thinking that Anadi Burgers reputation is good. Recipes are sorted. Customers are loyal.
If I had to build this business from scratch, then I will have to put in 5-7 years of struggles. It's better that I pay 10 times of it's profit and acquire the business. And work hard on improving the business profits.
This concept is known as 'P/E ratio', i. e. Price/ Earnings.
Business's profit i. e. Earnings.
. . How much higher are you ready to pay than that and acquire the business?
The profit of Anadi Burgers was Rs 50 lakhs. His business was sold for Rs 5 crores. This means it's P/E ratio was 10.
Now If Nivedan wants to purchase Anadi Burgers for Rs 5 crores. Then he will have to purchase all the shares of Anadi Burgers. Anadi Burgers has 10 lakh shares in total.
Their combined value is fixed at Rs 5 crores. This means, the cost of one share would become Rs 50. I own 4 lakh shares.
This means Nivedan will purchase 4 lakh shares from me at the price of Rs 50. I will earn Rs 2 crore. It means he earned a profit of Rs 1 crore 60 lakhs.
This is known as 'Capital Gain', which is also taxed. I will tell you about that later. Similarly, Rahul will also sell his Rs 4 lakh shares to Nivedan and earn Rs 2 crores.
Rohan and RJ will sell their shares worth Rs 1 lakh and earn Rs 50 lakhs each. And in this way. Nivedan will become the new owner of Anadi Burgers.
Now this is what equity investing is. Until this point, there is no involvement of us, i. e.
the general public. Now presume that we didn't sell the company to Nivedan. Rahul's dreams are too big.
He doesn't want to stop at Rs 50 lakh, but wants to earn a Rs 50 crore profit. And to do this, he needs an investment worth Rs 10 crores. But at this time, he doesn't want to take investment from us, private investors.
He wants to procure investment from the general public. For this purpose, he will create a document, which is known 'Red Herring Prospectus'. In this document, Rahul will explain Anadi Burgers's business in detail.
What type of business is it? How is it's financial condition? What will be the business's strategy to reach the Rs 50 crore profit?
How will he utilise the new funds invested by the general public? And he will also mention about the 10 crore IPO (Initial Public Offering). But only 7 crores will be invested for the business growth, i.
e. in Anadi Burgers. This is known as 'Fresh issue'.
i. e. The general public will invest their money in 'Anadi Burgers'.
And against that, Anadi Burgers will issue fresh shares to the public. And the remaining 3 crores will be 'offer for sale'. Existing investors, i.
e. I, Rohan, RJ will sell our shares to the public and exit. This means, we will receive those Rs 3 crore.
After this plan is executed. . .
'Anadi Burgers Pvt Ltd' will change from 'Anadi Burgers Ltd'. . .
or 'Anadi Burgers Public Ltd'. It means that the stock of Anadi Burgers will be listed on the stock market from now on. Stock market means National Stock Exchange.
. . or Bombay Stock Exchange in India.
These markets are operational from Monday - Friday, 9:15 am - 3:30 pm. And these are also known as the 'Secondary Market'. Secondary because, I won't be directly purchasing that share from Anadi Burgers.
Rather, I am purchasing that share from an existing shareholder. Everyday, during market hours, investors trade almost 7,000 company stocks amongst each other. For a company's stock, If there are more buyers are less sellers, then it's price would increase.
And If the buyers are less and sellers are more, then the stock price will reduce. Hence, every company's stock during market hours keeps fluctuating. How equity destroys wealth?
This is what stock investing means. In which, us, i. e.
retail investors can participate. The problem is If I purchase the stock of Anadi Burgers. Instead of reaching the 50 crore profit in the future, it instead incurrs 50 crore loss.
Maybe because Khiladi burgers opened in that area. and it eliminates Anadi Burgers from the competition. On that day, no one would want to take the stock of Anadi Burgers.
i. e. their buyers will disappear entirely.
And there will be a lot of sellers. Eventually, it's stock price will start falling. This is the biggest problem that a common man faces.
And most people eventually lose trust on the stock market. when they lose their invested money. And exactly, the solution to this problem is: 'Mutual Funds'.
Now listen carefully. Come here. Mandy, Andy, RJ, Rohan.
. . and all of you.
All of us together invest the money in a fund. Because we are doing this mutually. This fund will become 'Mutual Fund'.
Mutual Fund will collect all our money and invest in not 1, but 30-40 businesses. Hoping that most businesses would be experts in their domain. And maybe few might be losers.
But overall, we will make wealth on our funds. There will be a professional qualified Fund Manager in Mutual Funds. who possesses 2-4 degrees in Wealth Management, Investment Banking, spanning 15-20 years of experience.
Who is fully capable to conduct a fundamental analysis of the business. And from a universe of 6,000 - 7,000 companies. .
. to select 30 - 40 quality companies. Either you or me, such highly qualified Fund Managers.
. . won't be able to able to afford individually.
Because their salary is high. But If they start managing everyone's investment, and not just yours and mine. It would then become affordable to pay his salary.
So this is how it will work. Let say, all of us together invest Rs 100 crores in the fund. It means, the 'Assets Under Management' of this Mutual Fund is Rs 100 crores.
Just like the entire company's equity gets divided into number of shares. Similarly, the AUM of Mutual Fund is also divided into number of shares. Let's presume, this Mutual Fund has divided it's total AUM into 10 crore shares.
So the value of 1 share would become Rs 10. In order to not confuse you, let's not term the shares of Mutual Fund as shares. Let's call it 'units'.
Let's explore for which reasons can AUM, i. e. Asset Under Management be deducted.
It will increase, If a new investment arises. If the existing investors take their money back. i.
e. If they redeem it, then the AUM will reduce. And If during those market hours, those stocks increase or decrease.
In which, the Mutual Funds have invested. Even then the AUM can be deducted. And everyday after the stock market closes, this AUM gets updated.
Once AUM gets updated, then the per day NAV also gets updated. NAV (Net Asset Value), i. e.
it's the formula of one unit of price. Net AUM/ Number of units. Net AUM = AUM + Fresh Investments - Redemptions - Expense Ratio.
This expense ratio is the fee of fund management. . .
which you will provide the AMC (Asset Management Company), because they are managing your money and growing it. Let's say our AUM is Rs 100 crore. And the expense ratio is 0.
5%. So 0. 5% on Rs 100 Cr, i.
e Expense ratio of Rs 50 lakhs. All of us are paying it together to the Asset Management Company. That Asset Management Company will pay the salary to it's Fund Managers.
And cover all their expenses too. And this expense ratio of 0. 5% is not deducted just once.
It is deducted on a per-day basis. i. e.
every day a new AUM will be calculated. A new expense ratio will be deducted on it. After that, by dividing it with the number of units.
Per unit price, i. e. NAV is published.
It means when you check the returns of Mutual Funds online. Those returns are 'net returns' receivable by the investors, after paying all expenses. Or is it?
There is also generally an 'exit load' of the Mutual Funds. It means that Mutual Funds might have a condition. .
. The units that you have purchased today. If you sell those prior to 12 months.
So you will have to bear the exit load of 1%. Exit load is an additional type of expense which is conditional. Expense ratio is another type of expense which is compulsory.
The objective of this video series is to make you transform from rags to riches. I mean my objective is to teach you from basics until at a certain advanced level. .
. wherein you will be able to take informed decisions of your money. You will not just be able to invest your money in Mutual Funds.
. . But you will be able to design your overall portfolio.
To do this, one of the simplest tools is tickertape. tickertape has all the data of the listed companies in the stock market. And they have all the mutual funds data too.
For example, look at this, 'Money Minded Mandeep Mutual Fund'. Just kidding. I have changed the name so that you don't consider names mentioned by me.
. . and presume it as buy or sell recommendations.
Because, either I or Labour Law Adivsor are not SEBI registered Investment Advisors. Now this Mutual Fund of Money Minded Mandeep. .
. It's current NAV, i. e.
the price of one unit is 257. 99. You will find a score card of every stock and mutual fund on tickertape.
It will give ratings of five factors at a glance. Performance, Risk, Cost, Composition and Red flags. The expense ratio of the Mutual Fund is 0.
61%. This is an equity focused fund. It's AUM, i.
e. Asset Under Management is Rs 19,577 crore. And it is categorised as very high risk.
If I want to know which companies has this fund invested in, then I will scroll to the portfolio section. I will understand here at a glance that 83. 5% is invested in equity.
The rest are invested in cash and real estate. If we want to look at the individual company names. We can also preview that list here, with their weightage.
And If you choose to invest in this fund. This Mutual Fund will email you every month. How was the performance of the fund?
And which companies has the fund invested in? You can even learn about the fund manager. After all, every investor has pooled in their money and trusted one Fund Manager.
The details of the Fund Manager are here. He manages Rs 1,11,594 across multiple Mutual Funds. He has 9 - 12 years of experience.
His qualification and past experience is also written. In fact, you will find the rankings of all fund managers of this mutual fund category. Now you will have to do one task before Episode 2 comes out.
Go to 'Portfolio' and link your current Mutual Fund Portfolio. Just by adding the PAN number, it will automatically fetch all your details. And will analyse and let you know what your current status is.
In which Mutual Funds have you invested in? How much is it? And how much is the profit and loss on it?
It will show all those details. At the same time, it will also analyse your portfolio. Diversification score.
XIRR (Extended Internal Rate of Return) analysis. You will understand whether your total portfolio return. .
. is it above category average or below. If it's below, then it's time to change some things.
Because your portfolio hasn't been formed properly. You can also check your mutual fund rankings. By returns, by cost and by volatality.
After that, red flags and tax analysis. i. e.
If you were to sell your mutual funds today, then. . .
How much long term capital gain, short term capital gain or loss you've to incur? And how much income tax will you have to pay on those gains? You can improve your tax planning with this too.
I will make you a Master of Mutual Funds in the upcoming videos. But to conduct that entire research, you will need tickertape. And I would really appreciate that the little homework I will give you.
You must complete those and watch the future episodes. So that you finally deivate from theory and learn practical applications. Hence, you will find the link to download the tickertape app.
. . in the description and top comment.
Download tickertape app and do this small exercise. Categorisation of Stocks. Now presume that Anadi Burgers is listed on the stock market.
It's share price is Rs 100. And he has Rs 10 lakh shares. If I want to entirely acquire 'Anadi Burgers', i.
e. 100% ownership. So I will have to purchase all the 10 lakh shares.
How much will that cost? Price of 1 share x number of shares, i. e.
Rs 100 crores. This Rs 100 crore which is the company's total equity. .
. is also known as 'Market Capitalisation'. In short, 'Market Cap'.
Now we will visit tickertape. We will go to 'Screener' and create a new 'Custom Screen'. And If I don't apply any filter, then.
. . I will find all the company names currently listed on the stock market.
If I rank these companies in the descending order of the market cap. So I can say that I have India's biggest company's list. And according to the market cap, India's top 100 companies are known as 'Large Cap companies'.
From 101st to 250th have been categorised as 'Mid Cap companies'. And the remaining one's after 251st are categorised as 'Small Cap companies'. Furthermore, NSE, i.
e. National Stock Exchange has created an index as Nifty50. In this, not just top 100.
Rather, top 50 companies are listed as per market cap. Every company has given a separate weightage. And on that basis, Nifty's value is computed.
Currently, Nifty 50 has these stocks. and as you can see, HDFC Bank has a 13. 5% weightage.
And after that, there is a Reliance Industries which has a weightage of 9%. By applying a weighted average formula on all these stocks. .
. We receive Nifty 50's number which is currenly close to 25,000. And If the heavy weight stocks in Nifty50 crash someday.
Then Nifty's overall value will fall down. And If those stocks increase, then Nifty's value will also increase. Interestingly, If every company's share price fluctuates during market hours.
Simultaneously, it's market capitalisation will also fluctuate in real time. So it's also possible that a company might be on the 48th rank as per market cap. If they crash and it's rank comes down to 51st.
Hence, Nifty 50 and Sensex 30 keeps getting revised every 3 months. So only the top 50 companies of India will be included. And all the other companies are removed from that list.
I am telling you all this, because these are the types of mutual funds. Categorisation of Mutual Funds Large cap mutual funds are those funds. .
. who choose and invest in top 100 companies as per market cap. Mid cap mutual funds are those funds, who decide to invest in companies from 101 - 250 as per market cap.
And you might have already guessed about small cap mutual funds. After that, there is something as Multi cap mutual fund. It mandatorily must be invested -- minimum 25% money in large cap; minimum 25% money in mid cap; minimum 25% money in small cap.
He can invest the remaining 25% as per his wish. After that, there is a 'Flexi cap fund'. Here, the fund manager has immense freedom.
He can invest wherever he want, how muchever he want. . .
including foreign companies. There are varied types of risk in different types of funds. There will obviously be lowest risk in India's biggest companies.
You will find lesser risk in large cap funds, maybe the returns will also be less. You will find relatively higher risk in mid cap funds. But there is a large scope of growth.
And you will find very high risk in small cap funds. Because it invests in small businesses. The unique aspect of small businesses is.
. . either they go from zero to successful; or successful to zero.
These were the broad categories of mutual fund as per market cap. These funds can be further categorised into two types. i.
e Active or Passive. Let's say there is a Large Cap Active Fund. It means although the fund manager has certain restrictions.
He must invest in the top 100 companies. But he can select in which companies he wants to invest and doesn't. Which stock does he want to sell and purchase a new one.
We will call this as 'Active Management'. On the other hand, there is Nifty 50 Index Fund. This is a passively managed fund.
It means that the fund manager is not actively taking any investing decisions. If you invest Rs 100 in this. So Rs 13.
5 will be invested in the HDFC stock. Rs 9 will invested in Reliance. .
. and so on. It will invest your funds in the Nifty 50 companies exactly as per the weightage.
Over time, the number at which Nifty will generate returns. This fund will also generate the same. Because this is nothing but a reflection of an index.
We don't just have 2 indices, such as Nifty 50 or Sensex 30; we have more indices than that. As there is 'Bank Nifty' formed to track all the country's largest banking stocks. Similarly, 'Nifty IT' has been formed to track IT companies.
You will find every type of indices; industry and sector-wise too. market cap wise. In fact, investing style-wise as well.
And fun fact. Many of the actively managed funds are unable to beat their benchmarks or Nifty. It means that you have hired a professional fund manager.
who is also actively investing your money. But they are probably not doing a better job than Nifty. What is Nifty?
50 of the best Indian companies. In which there is very low risk, but it still gives growth. There are not just 2 or 4, but 1000s of mutual funds of different types in India.
Visit tickertape, click on screener. Toggle to 'Mutual Funds', and here you will find all the list of Mutual Funds. If you expand the 'equity' section in the category of Mutual Fund.
then you will understand the varied type of mutual funds in just equity asset class. And If you realise now that we don't just invest in mutual funds. We invest in stocks through mutual funds.
So why just stocks? We can also invest in debts, i. e.
bonds through mutual funds. Or we can also invest in real estate, and commodities such as gold and silver. In fact, you can invest in bitocin through mutual funds in the US.
We will try to decode all these in the next few videos. And we will ultimately learn how to create our Investment Portfolio. Till then, download the tickertape app from the link in description.
. . and pinned comment and do your homework.
Also subscribe, press the bell icon. For you to be notified when the second episode arrives. Bye!
