20 Years of Mutual Fund knowledge in 91 mins | The 99% Club | Kirtan Shah

Market cycles & timeframes (small/mid/large caps)

• Cycles vary by market cap (based on his “last 25 years” study):

  • Large caps: ~3-year market cycle
  • Mid-caps: ~5-year market cycle
  • Small caps: ~7–8-year market cycle

• Caution: Don’t judge returns using only point-to-point periods (e.g., just 1-year/3-year). Use longer context because funds can look “underperforming” within a normal cycle.

• SIP vs lump sum timing example (small caps):

  • If you lump-sum at the small-cap peak, historical cycles suggest you might get ~zero return by cycle end.
  • With SIP, he claims ~10–15% returns are achievable over the cycle since you average in more units during drawdowns.

Frequency of drawdowns & how to respond

• Using Nifty historical data, he claims:
  • Intra-year fall of 10% happened in 41 out of 45 years → “normal.”
  • Markets often recover by year-end: “green” calendar year close in 36 of those 41 years.

Action framework (aggressive approach)

• Minimum holding period aligned to cap-cycle:
  • Large: ~3 years
  • Mid: ~5 years
  • Small: ~7–8 years
• If markets fall <10%: don’t panic—continue SIP.
• If markets fall >10%:
  • consider deploying a lump sum (if available), and/or
  • use cash flows
• He references that larger declines (~25–30%) can occur roughly every 7–8 years for small-cap cycles.

Expected return ranges he cites (CAGR)

• Over the last 10 years (as mentioned):
  • Small caps CAGR ~16%
  • Mid caps CAGR ~19%
• He argues this supports:
  • giving small caps more time
  • expecting different risk/return behavior due to liquidity flows (small-cap inflows tend to go into fewer stocks)

Portfolio construction: 80/20 “core-satellite”

• Asset allocation recommendation: 80/20
  • 80% equity
  • 20% fixed income + gold
• For aggressive investors, he suggests keeping the same 80/20, implemented practically:
  • keep 20% in gold/fixed income to add stability when equity falls
  • gold may be less volatile short-term; fixed income provides ballast
• Rebalancing caution: rebalancing can create tax impact if you sell and shift.
  • He encourages rebalancing mainly via new cash flows when possible.

Combining cap segments (active vs passive structure)

• He advocates active across large/mid/small, but offers passive alternatives:
  • Large cap: index (passive) like Nifty 50, or active flexi cap
  • Mid cap: either mid-cap funds (active) or multicap as a proxy
  • Small cap: prefers active small-cap, not passive

Multicap proxy idea (regulatory structure)

• He claims multicap typically ends up around:
  • ~25% large / 25% mid / 25% small, with remaining flexibility
  • broader “industry composition” often ends up roughly 50% large / 25% mid / 25% small
• He positions multicap as closer to mid-cap risk/return than true small-cap exposure.

Flexi-cap “pseudo large-cap” note

• He argues many flexi-cap funds benchmark-linked to NSE 500 / BSE 500:
  • ~65–70% large-cap weight
  • ~20–30% in mid/small
• Implication: flexi-cap may behave like a “pseudo large-cap” fund rather than truly small/mid-heavy.

Passive vs active (risk/return and tracking)

• Passive funds:
  • replicate the index (example: Nifty 50)
  • returns/risk should closely track the index (minus tracking error)
  • generally lower cost than active
• Active funds:
  • use stock selection from a wider universe
  • may outperform or underperform depending on manager execution

Cost disclosure via TER (indicative figures)

• He notes:
  • Active TER is higher
  • passive may be around ~50–70 paise
  • active around ~1.5% (approximate wording)

Fund selection methodology (key framework & metrics)

1) Use rolling returns, not only recent point returns

• Don’t judge by only 1-year/3-year/5-year/10-year “point” performance.
• Prefer Age / rolling returns to assess consistency over time.

2) Evaluate return consistency + risk-adjusted performance

He proposes using three ratios:

• Information Ratio: how much the fund beats the index vs the risk taken (higher is better)
• Sortino ratio / “Certino” (spoken as “Certino”): focuses on downside risk (higher is better)
• Together with rolling returns, these indicate quality of return

3) Additional professional checks (briefly mentioned)

• Upside/Downside capture ratios
• Allocation behavior:
  • top sector allocations and how frequently they change
  • top 5 stock allocations and how frequently they change

4) Style/manager stability and cycles

• Funds may underperform normally due to:
  • market cycles
  • manager style shifts (value/growth/momentum)
• If a fund manager changes, past performance may become less relevant.

Style investing: value vs growth vs momentum (cyclical performance)

• Value: buys “cheap” stocks; tends to do well when market valuations are high.
• Growth: buys “expensive” stocks expected to grow faster; tends to do well when “growth opportunities” become cheap.
• Momentum: favors sectors with the strongest flows/momentum.
• Caution: Underperformance may be cyclical style mismatch, not necessarily a “fund mistake”—but it could also reflect manager/style error or portfolio drift.

Fixed income section: duration vs credit (how to choose debt funds)

Debt allocation buckets

• Corporate bond / PSU debt funds (credit risk focus)
• Medium/Long duration funds (duration/interest-rate risk focus)
• Credit-risk funds for higher expected returns when credit spreads improve

Key concepts

• Duration (interest-rate) risk
  • when interest rates fall → long-duration bonds can benefit
  • when rates rise → long-duration can hurt
• Credit risk
  • when interest rates bottom out and/or credit conditions improve → credit risk can provide higher returns

General rules (based on macro view)

• If you think rates are likely to fall → tilt toward medium/long duration
• If you think rates are done rising / credit is improving → tilt toward credit risk (e.g., higher yield bonds)

Inferring “topped out” vs “bottomed out” (inflation/interest)

• He claims:
  • when inflation tops out and starts falling, rates eventually fall
  • if inflation is not falling (or re-accelerates), rates may not decline
• Retail-friendly approach:
  • read monthly fund fact sheets for manager commentary on inflation/rates
  • because markets front-run narratives, allocation shifts may happen before the full macro story becomes obvious

Government bonds note

• Government bonds: primarily duration risk, low/no credit risk
• He suggests easier alternatives (e.g., short-term bonds/PSU) if you don’t want to track precise duration/credit timing.

Liquidity & short-term parking

Alternatives discussed (vs savings account):

• Savings account: ~3.5%
• Liquid funds: ~6%
• Arbitrage funds: ~6%
  • potential ~12% capital gains tax if held >1 year (as stated)
  • he frames tax benefit vs savings as comparable low risk

Systematic cashflow options: Growth vs IDCW, SWP, STP

Growth vs IDCW (dividend option)

• Growth option: compounding retained in the fund (generally better for long-term)
• IDCW: distributes income, can reduce compounding
  • he claims ~30% tax on IDCW for the recipient (as stated)
• For lower-income brackets, he implies IDCW may reduce taxes up to some limit, but:
  • payout regularity is not guaranteed

SWP (Systematic Withdrawal Plan)

• Withdraw a fixed amount at a frequency.
• He warns about capital gains tax and suggests not starting SWP abruptly:
  • allow some time to build (example mentioned: ~18 months waiting)
  • don’t withdraw the entire return; keep withdrawal rate below expected return
    • example given: if fund returns ~8%, withdrawing full 8% can erode principal

STP (Systematic Transfer Plan)

• Transfer from liquid fund to equity gradually over time (example: 3–6 months).
• Purpose: reduce lump-sum timing risk.

Gold implementation within MF/ETF

• Options:
  • Gold ETFs (via demat/broker)
  • Gold mutual funds (ETF-like underlying; purchased by the mutual fund)
• Caution: ETFs can trade at premium/discount to NAV
  • check NAV vs market price on the issuer’s site
  • he criticizes buying at large premium

Examples of tickers/indices mentioned

• Nifty 50
• Nifty 500
• BSE 500
• NSE 500 / BSE 500 (flexi-cap benchmark universe mentioned)
• BSE 100
• No specific individual company tickers were provided.

Notable numbers & explicit recommendations/cautions (condensed)

• Timeframes (cap cycles):
  • Large: ~3 years
  • Mid: ~5 years
  • Small: ~7–8 years
• Return examples:
  • Small-cap peak + lump sum: ~zero return
  • Small-cap peak + SIP: ~10–15% (claimed)
  • 10-year CAGR: Small ~16%, Mid ~19%
• Drawdown frequency (Nifty claims):
  • Intra-year ≥10% fall: 41/45 years
  • Year-end “green”: 36/41 years
• Allocation:
  • 80/20 (equity vs gold + fixed income)
• Tax cautions (as stated):
  • Equity: gains tax 20% if held <1 year; 12.5% after 1 year
  • Debt: he says it follows slab rate (holding duration doesn’t materially change the tax approach, as stated)
  • IDCW: about ~30% tax on IDCW payouts
  • SWP/Selling: withdrawals/sales can trigger capital gains taxes
• Debt selection: tied to macro view of inflation and interest-rate turning points

Disclosures

The presenter explicitly states: “this is not advice.” The content is positioned as an informative framework/sector lens to track.

Presenters / sources mentioned

• Kirtan Shah (main subject/guest expert)
• Kunal (host; referenced as “Kunal Founder of Ups… The 99% Club”)

General sources/examples mentioned:

• Morningstar
• Advisor (for checking rolling returns)