While I develop a few investment strategies that can benefit a huge population of retail investors, let us get done with our homework. It is important to understand the "why" of investing before we get into the "how" of it.

Why you are better off than 86% of mutual funds

Let us do a simple exercise. Look back at your monthly expenses for the last year. There will be a month or two where you spent more than usual, perhaps for a festival or a vacation. Leave out those months. For the rest of the "usual" months in the year, calculate your average monthly expenses. Assuming this figure to be INR 100,000, we create a hypothetical Term Deposit for a period of 30 days. Such a term deposit would earn interest @ 5.75 % per annum. At the end of the 30 day period, the accrued interest is reinvested with another INR 100,000. If we did this for 12 months in a row, here is what we would get.

(Interest rates sourced from SBI)

Now consider that you had a credit card, with zero annual fees, and you paid the entire due amount by the due date and paid for all your expenses using this card, you could easily create this surplus earning for yourself. And how good is this? 

This return is
  1. Entirely risk-free
  2. Is better than 52 % of all mutual funds that operate in India
  3. Is a better return than what these mutual funds earn for INR 680,805 Crores worth of assets under management. (data sourced from mutualfundindia.com, all returns are annualized)

If you added a cashback program to the credit card you are using at a meagre 1% per annum
  1. You would be better off than 65 % of all mutual funds that are operational today
  2. Earning more returns than what INR 903,284 Crores worth of assets under management are earning

But "mutual fund investments are subject to market risks"! Let us assume that the risk is another meagre 1 %. Where do you stand then? 
  1. You would be better off than 86 % of all mutual funds that are operational today
  2. And earning more returns than what INR 1,767,499 Crores worth of assets under management are earning
For a complete list of funds and their performance, download this spreadsheet

It seems that only 14 % of mutual funds, i.e. around 100 out of 723 mutual funds in the country are beating this simple tweak. This brings us to our first reason for investing. Investing does not necessarily mean screening through hundreds of stocks, funds, bonds and term deposits in order to find a suitable choice. It could be as simple as keeping your eyes open and being aware of where you are putting your money. Though the market risk is far higher than 1 %, we have already established that it is easy to beat approximately 623 mutual funds who have been entrusted with staggering amounts of money that people have earned. Yes, the figures will change with every passing day, some funds may be saving you taxes but the above example is just an illustration of how blind we have been with our investing habits.

What we are going to reveal next is even more shocking. If you had a buffer fund to take care of your expenses for 2 months, you could move to a higher bracket of interest rates offered by your bank. In our example, SBI offers a rate of 6.25 % for an investment period of 46 days to 179 days. So if you invest INR 100,000 today in a term deposit for 60 days for paying your credit card bill at the end of month 2, and INR 100,000 for 30 days for the bill at the end of month 1, at the end of the month, you could pay by liquidating your INR 100,000 deposit, create a fresh deposit for 60 days to pay at the end of month 3. These 60-day deposits would keep rolling and here is what the difference would look like.


Yes, you would have outperformed most of the mutual funds, and that too with zero risks.

It is worth noting that this is not a substitute for your investments. This is a way of putting your money to work in addition to all the investments you have. Instead of leaving them idle in the bank, or instead of paying every service provider outright, the use of credit can earn you a return of 6.432 % on your "working capital".

Now that you should be convinced that there are ways to make your money work for you, let us look at another fact. There are 16 index funds available in our country. And all that they do is replicate the index, for a cost. What if you could do this yourself? If you have read our article on what brokers are hiding from you, you will realize that for every rupee you are investing in an index fund, you are getting far less worth of holdings. This takes into account their management fee, all operational costs and the liquid cash the funds are holding at all times. Apparently, index funds open the doors of index investing to individuals who would not want to invest directly in index futures due to a shortage of liquid funds. 

It is worth noting that the highest annualised return on an index fund as on date is 16.08 %. What if we could find a way to earn this return and hold equity worth our actual investment? Yes, you could simply buy NIFTYBEES, the equity equivalent of the S&P CNX Nifty Index. One unit of NIFTYBEES is 1/10th the value of the index. And there are no management fees to pay, no cash reserve to be maintained. You get what you pay for, not a penny less. Effectively, this translates into earning returns for the money that we would have otherwise paid to the fund houses for their fees and expenses. If you are more interested in the Sensex, it does not really matter. The Sensex and the Nifty are highly correlated with a correlation coefficient of 0.99908. Here is how they look when plotted together since inception.



Since there is no equivalent instrument available at the Bombay Stock Exchange, you could choose NIFTYBEES as an alternative.

As we can see there are different ways to look at investing. Feel free to share your views in the comments below. And till we work on better ways to invest, stay tuned !