Index funds best bet to get decent, assured returns from stock mkts

Edge Institute of Financial Services (EIFS) helps traders, investors, beginners, fund and portfolio managers with the tools and techniques required for investing and trading in the stock market. "We have always believed that a know nothing investor can actually do better than most mutual fund managers by buying an Index fund (Sensex & Nifty) and we often use Warren Buffett quote to support our argument." says Varun Malhotra, Director & Founder, Edge Institute of Financial Services, in an exclusive interview with BIZZ BUZZ

We got our first big break when we started a financial literacy programme for the Border Security Force under the leadership of Director General KK Sharma. Within two years of a massive financial literacy programme, more than 30,000 jawans and officers started investing in the index to secure their financial future. Today, more than 40,000 people enroll in our Financial Literacy Awareness Program (FLAP), every single month on our website

We conduct both classroom and online training programmes. For the online programmes participants just have to download our EIFS-Varun Malhotra app and can start viewing the programme from the comfort of their homes. They also have access to a discussion forum to raise their queries

What is your mission for the company?

The company's mission is to make India financially literate and change the way India invests. I believe organisations flourish when they identify and solve the problems in any industry. I think I sensed very early that India had and still has a big problem of financial illiteracy. People either don't know the importance of saving and investing or don't know where to invest, their over-dependence on advisors and distributors leads to gross misselling of financial products. It was always very clear to me that any organisation that could solve this problem, would make a huge contribution to India's prosperity. That is what we are trying to achieve.

How has the company evolved since inception?

We have always catered to two sets of investors, the know nothing investors & professional investors through our Financial Literacy Awareness Programme (FLAP) & Financial Literacy Intensive Programme (FLIP) respectively. We have always believed that a know nothing investor can actually do better than most mutual fund managers by buying an Index fund (Sensex & Nifty) and we often use this Warren Buffett quote to support our argument "By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals."

But when we started talking about Index funds 11 years back in our seminars hardly anyone was interested. A lot of people in the industry said that Index funds are helpful only in developed countries like America and our approach was criticised by many in the industry. Today I am happy to tell you the growth in Index investing in the last ten years has been phenomenally higher than Active Mutual funds. Nearly all the fund houses today have introduced Index funds. But we could not have achieved this without the support that we received from retail investors. I should also mention the role of platforms like YouTube that helped us tremendously to spread this knowledge among retail investors.

We got our first big break when we started a financial literacy programme for the Border Security Force under the leadership of Director General KK Sharma. Within two years of a massive financial literacy programme, more than 30,000 jawans and officers started investing in the index to secure their financial future. Our efforts were recognized by leading publications. We were also covered in the book "Heroes Amongst Us" by Dr Nagpal for our efforts to spread financial literacy in the country. Today, more than 40,000 people enroll in our Financial Literacy Awareness Program (FLAP), every single month on our website www.varunmalhotra.co.in.

Our Financial Literacy Intensive Program (FLIP) teaches thousands of retail investors how to implement the principles of value investing and how to identify great businesses/stocks that might be available at a discount to their fair value.

What is the basket of products/services the company offers to the market?

We are purely an educational institute. Our focus is on providing awareness and intensive programmes that empower retail investors to take control of their portfolio and their financial future. We have consciously decided to not sell any product (equity, debt, insurance, etc) or advisory services to our course participants or other retail investors. We believe a conflict of interest arises when an educational institute also tries to act as advisors or distributors since the monetary incentive to sell a product or service is usually much higher than giving the right education.

What are your targets in terms of persons do you plan to make financially literate? And what kind of investments in terms of value do you expect from them?

Like I said before, we're on a mission to make India financially literate. A lot of people think that it is impossible to achieve that, we don't think so. This pandemic has been a blessing in disguise for us, earlier we had to travel a lot to conduct seminars to spread financial literacy. We were conducting seminars for more than 1000 people every month in auditoriums, but seminars had their limitations. Now after Covid-19, the world has welcomed the culture of webinars. Technology has helped us to conduct webinars at a scale that we never thought would be possible. We also realize to make India financially literate we would have to work with schools. We hope one day we would be able to include our programmes in the curriculum of every private and government school in India. Our experience of working with BSF jawans, Indian Army and children at DAV School (under the guidance of Dr Nisha Peshin, Director Public Schools, DAVCMC & Manoj Mittal, Founder DAV United) has given us enough experience to execute our plan.

Could you decode the volatility of the market and what kind of return on investment can one expect from investing in the share market?

We believe that the easiest way to invest in the stock market, for a know nothing investor, is to bet on the Indian economy. The growth in the Indian economy in the long run is reflected in the growth in the benchmark indices of the country, Sensex and Nifty. Sensex started with a base value of 100 in 1979 and today is trading at 50,000. The index has gone up by 500 times in 41-42 years. If anyone wanted to get this kind of return (16 per cent CAGR) all they had to do was buy the Index. This is called Index investing. As an investor in the index, you don't have to worry about which companies will do well and which will go out of business. Sensex & Nifty are dynamic baskets of the top 30 & 50 companies of India. Companies that don't do well their share prices drop and their weightage in the index goes lower and finally being replaced by better performing companies. So even though Sensex and Nifty are very volatile in the short run, they will continue to go higher as the Indian economy keeps growing.

What strategy would you suggest for an investor wanting to create a portfolio of around five lakhs of shares?

Assuming the investor has a horizon of more than seven - eight years and can tolerate volatility (even Index is volatile). The easiest thing to do would be to park five lakhs in an ultrashort debt fund (direct & growth plan) and start a systematic transfer plan of around 7,500 per month from the debt fund to an Index fund. These five lakhs would be entirely shifted to the index fund in six-seven years.

What is the nature of your training programmes?

We conduct both classroom and online training programmes. For the online programmes, participants just have to download our EIFS-Varun Malhotra app and can start viewing the programme from the comfort of their homes. They also have access to a discussion forum to raise their queries.

What kind of safe stocks would you recommend in a post Covid era?

Actually, the Warren Buffett kind of Investing that we follow does not change much because of these things. As Warren Buffett says, "Predicting rain does not count, building arks does". So we generally look for a company that has a very strong economic moat, a durable competitive advantage in an industry that is not about to change much in the next decade or two. Once we find such a company, we wait for it to come down to a reasonable price.

How safe are mutual funds? Is it an ideal strategy for small investors?

When it comes especially to equity mutual funds, they can be broadly classified as active and passive mutual funds. We believe it makes more sense to invest in passive funds (Index funds) because of much lower charges and their ability to beat the majority of active funds in the long run.