Notes From Pranjal’s Mutual Funds Masterclass

In just the last 5 years, Indian mutual funds have grown from ₹25.4 lakh crore to ₹74 lakh crore in assets under management (AUM). That’s 3x growth in half a decade. Zoom out further: over the past 10 years, the industry’s grown at a 20% CAGR. Now, let’s compare that to the darling of older generations: Fixed Deposits.

• FD returns today: 6-7%
• Inflation: 6-7%
• Real growth: Basically zero

On the other hand, if you check the Sensex 30 data since 1986, the mutual funds have delivered a 14% CAGR. Strong case, right? Here’s the kicker: only 3-4% of Indians invest in MFs. That’s about this much. 👇 

This is a massive, underexplored territory, and you have the chance to get in before the rest of India wakes up. And we know just what you need! A clear idea of what you’re investing in, why you chose it, and how much of it makes sense for you. Let’s break it down, exactly like Pranjal did in his Mutual Funds Masterclass.

But First, Why Even Consider Mutual Funds? 

Because they’re the shortest bridge between your money and the market. A mutual fund is basically a trust that collects money from people and invests it in stocks, bonds, or other securities.

The point?

• It’s professionally managed: You’re using the expertise of a fund manager.
• It’s diversified: Your risk is spread out. When the investments grow in value, your NAV (Net Asset Value) increases. When they don’t, it drops.
• It’s accessible: You can start small, sometimes with as little as ₹500.

So, if you’ve ever thought, "I don’t have the skill to pick individual stocks" or "I can’t track the market daily", mutual funds exist exactly for you. The engine here is compounding. Over the years, disciplined investments + reinvested gains can grow into a significantly larger corpus (something an FD will simply not match in real terms. 😉)

The Bigger Question: How Much To Invest in MFs?

This depends on your: 

• Risk tolerance 
• Investment horizon
• Pre-owned assets

An equity-heavy mix can deliver higher returns over time, but it also comes with sharper ups and downs. A more balanced mix may give you steadier growth, though the returns might be lower in strong bull markets.

And it’s not a one-time decision, BTW. Your allocation should evolve as your goals, age, and financial situation change. Don’t worry, we’ve covered it all in one of our articles: Notes on Pranjal’s Personal Finance Masterclass. 

Now, Which of the 2500+ MFs Should You Go For?

We’ve boiled it down to a 4-step approach to decide which mutual funds fit in your portfolio. 

Step 1: Choose Your Plan Type

This is basically deciding how you want to buy your mutual fund.

• Direct Plan- You go straight to the AMC (mutual fund company) without a middleman. You save on distributor commissions, which means a lower expense ratio. Over time, that tiny percentage adds up.
• Regular Plan- You invest through a broker or advisor. They’ll guide you and maybe even handle the paperwork. But you’ll pay for that help through a slightly higher expense ratio every single year.

Step 2: Pick Your Fund Category

Now you’re deciding where your money will actually be invested. Before we get into defining each, here’s something for visual appeal and better understanding: 

Now that you’ve seen the flowchart, here’s what each one means in practical terms:

• Equity Funds- Your money buys shares of companies. This is growth territory. More potential returns, but more ups and downs. (We’ll focus more on this category.)
• Debt Funds-This is you lending money to companies or the government in return for interest. Lower risk than equity, but also lower returns.
• Hybrid Fund- A mix of equity and debt. You get some growth potential without going all-in on risk.

Step 3: Pick Your Style

Here’s where you choose the kind of instruments your investment will go into:

A) Active Funds- A fund manager makes buy/sell decisions to beat the market. Can outperform, but you pay higher fees, and there’s no guarantee. Have a look at the different kinds of active funds:

1. Large Cap- Invests primarily in the top 100 companies by market cap. Lower volatility, steady compounders. Good core holding.
2. Mid Cap- Invests in companies roughly ranked 101–250. Higher growth potential with sharper swings. Needs a 5–7 year view.
3. Small Cap- Beyond the top 250. Highest return potential and deepest drawdowns. Only for high-risk appetite and long horizons.
4. Flexi Cap- Manager can move across large/mid/small freely. A “go-anywhere” growth bucket; useful as a core active fund.
5. Multi Cap- Invests across large, mid, and small in defined minimum proportions. Ensures exposure to all three; expect some small-cap volatility.
6. Focused- Concentrated portfolio (typically up to ~30 stocks). High-conviction bets; results can deviate meaningfully from the index.
7. Contrarian- Takes positions against prevailing sentiment (turnarounds, out-of-favour sectors). Longer payoff cycles; higher active risk.
8. Thematic- Invests around a broader theme (e.g., manufacturing, EVs, consumption). Timing-sensitive; not a core holding.
9. Sector- Concentrated in a single sector (IT, Banking, Pharma, etc.). Highest concentration risk; use only tactically, if at all.

B) Passive Funds- Just copy an index like the Nifty 50. Super low cost and dependable. Hard to mess up. There are 2 main kinds of passive funds: 

1. Index Fund- Replicates a market index (e.g., Nifty 50, Sensex). Low cost, rules-based, minimal tracking error. Strong core choice.
2. ETFs- Like index funds, but traded on the stock exchange. Only good if you know how to buy and sell stocks.

Step 4: Match with Your Goal

Because the right fund also depends on when you’ll need the money.

Think of it this way: if you’ll need the money soon, choose safer options. If it’s a few years away, balance safety with some growth. And if it’s far in the future, go for growth-focused funds and let them work over time.

Now, let’s move on to deciding how to divide your money between direct stocks and mutual funds, a choice that can define both your risk and your returns.

Stock vs Mutual Fund Allocation

You don’t have to pick one over the other. You just have to figure out the right mix for you. If you have the skill, time, and temperament to pick stocks,  go ahead and dedicate a portion of your portfolio to them. Direct stocks give you more control (and potentially higher returns), but they also demand more homework and emotional discipline.

Mutual funds, on the other hand, are your “set-and-review” option. They let you participate in the market without tracking every quarterly result or worrying about sudden corporate announcements.

A common allocation strategy:

• If you’re a beginner ➡️ 80-90% in MFs, 10-20% in stocks
• If you’re experienced ➡️ 50-60% in MFs, rest in stocks (with proper diversification)

Remember: Your allocation isn’t fixed for life. Review it every year or when a big life event happens.

Now comes the practical part: how to shortlist the right funds from the hundreds in each category.

How to Judge and Select Mutual Funds

Picking the right mutual fund is all about applying a consistent set of filters. The aim is to choose funds that fit your goals, risk profile, and time horizon, and then give them enough time to do their job. Here are the core metrics and filters to focus on:
 

Factor	What It Means	Why It Matters	What to Look For
AMC Track Record	AMC’s historical performance over time.	Shows whether the scheme’s performance was luck or expertise.	At least 5-7 years of consistent performance.
Manager Tenure	The span the current fund manager has handled a fund.	Reflects stability and experience in decision-making.	5+ years is ideal.
Expense Ratio	Annual fee charged by the fund.	Directly reduces your net returns.	As low as possible to keep more returns
Turnover Ratio	Tells how often assets are bought/sold.	Affects transaction costs and potential tax outgo.	Lower turnover to avoid excess costs

With these key factors in place, you have a solid lens to evaluate annnyyyy fund. Now, it’s the approach that suits your goals and lifestyle.

SIP, SWP, or Lump Sum?

There are three main ways:

• SIP (Systematic Investment Plan)- You invest a fixed amount regularly (monthly, quarterly, etc.). Ideal for building wealth steadily and avoiding the stress of timing the market.
• SWP (Systematic Withdrawal Plan)- You withdraw a fixed amount regularly from your investment. Often sold as a “smart” option, but its real utility mostly shows up during retirement when you need a consistent income.
• Lump Sum- You invest the entire amount in one go. Works best if you have a large sum ready and the market conditions are right.

If you’re still earning, SIPs are your best bet. SWPs make sense only when you’re ready to draw from your investments, and lump sum investments are really just a timing game, one that’s harder to win than most think.

Now, let’s talk about how you’ll split your investments between mutual funds and stocks. 

How Much to Put in Mutual Funds vs Stocks?

The choice or mix depends on where YOU want to be, rather than what people are doing. 

Your Situation	Mutual Funds (% of portfolio)	Stocks (% of portfolio)	When to Use This Split	Why?
Beginner	80-90	10-20	Starting out, want stability	Resort to professional help
Got Goals (Education, House, etc.)	90-100	0-10	Non-negotiable targets	MFs keep your savings steady and growing
Surplus funds for extra growth	70-80	20-30	Already saved for key goals, want to try stocks	Stocks = higher upside, but only with “extra” money
Confident in stocks & research	60	40	You know your stuff, have time & skill	More control, more potential, but risky

In simple words:

• Big fixed goal- Load up on MFs.
• Extra cash- Use it for stocks.
• Unsure- Stick with MFs. You can always shift later.

Pick the mix that suits your life; stability first, adventure later. Review every year, or when your life changes. Ideally, 3 to 5 well-chosen funds are more than enough. Any more and you’re just doubling up on the same stuff, like filling your thali with four types of dals. Yet, dal matters, and not every kind is good for you. 👇

Which Mutual Fund Categories Should You Avoid?

Everyone loves a good story of how “EVs are the future!” or “IT stocks will boom!” But that’s exactly where most new investors get carried away. So, here are some categories that you should stray away from: 

• Theme-based funds (like EV, Tech, ESG, etc.): Tempting, but they swing hard in both directions. You’re basically betting everything on one trend or flavour of the month.
• Sector funds (banking, pharma, infotech): Same story. These put all your money in one slice of the market. Sure, the ride feels great when that sector’s hot, but it stings when things cool off. 
• Hybrids and “all-in-one” funds: If a fund sounds like it’s promising everything, growth, safety, income, world peace, pause and check what you’re really buying. Many hybrid or “balanced” funds end up being too complex for what they deliver.

Lastly, Don’t Act On Your Moods

Don’t sell too soon. Don’t chase last year’s “top performer.” Stick to simple categories. Avoid “trend” chasing, sector obsessions, or bouncing between funds out of impatience. 

• Pick mutual funds for your must-haves
• Use stocks for your extra “growth” money
• Don’t mess with trendy or risky categories
• Keep your mutual fund count tight (3 to 5, max)
• Review once a year, not once a week

And if you’re ever stuck in the process, just text us at support@finology.in. :)