Why PrimeInvestor's Srikanth Meenakshi prefers mutual funds to stocks

In this conversation with Mint, Meenakshi shares insights about his investments and discusses the growth of fintech and its impact on mutual funds.

What is your asset allocation?

My portfolio looks something like this: 63% in equity, 30% in debt, 5% in cash for emergencies, and about 2% in real estate. I aim to maintain a 60:40 ratio in equity and debt. I don't tinker with my portfolio frequently – I let it be for some time before taking any action.

Your equity component must have surged in the past year. Did you rebalance your porfolio?

Not yet. I usually wait until the equity component significantly deviates from the 60:40 ratio — 65% or higher – before rebalancing. So far I haven't felt the need to act.

Within equities, how much do you have in stocks and funds?

My equity component is predominantly in funds, with about 95% in mutual funds and ETFs, and 5% in stocks. Recently, I invested in direct stocks through Unifi PMS (a private portfolio manager), but I put this in the mutual-fund bucket as I don't manage the portfolio myself.

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What prompted you to use a portfolio management service?

I chose Unifi PMS, which is based in Chennai, due to specific conditions related to direct stock ownership and tax implications under the passive foreign investment company (PFIC) rule. This rule limits my ability to hold mutual funds in India because I also pay taxes in the US.

How many mutual funds do you have?

I initially made several transactions on FundsIndia to test the platform, resulting in about 20 funds. My planned investments are in around 10-12 mutual funds, which form about 90% of my equity portfolio. The rest are scattered across the other funds, which include equity and debt.

Do you invest in bonds?

Yes, through a debt PMS, which predominantly invests in debt instruments. I don't invest directly in bonds or hold any bank deposits. All my debt investments are in debt funds or through the debt PMS.

Do you invest in gold?

I have practically zero investment in gold.

Do you invest in PPF?

No, I never felt the need for it.

Tell us about your real-estate exposure.

I bought a piece of land during the early 2000s at the peak of the real-estate mania. I was living in the US at the time, and many people around me were buying land in India, so I followed suit. The land is still there and I don't get any rent from it. I plan to sell it eventually.

When did you start FundsIndia? What inspired the idea?

We started FundsIndia in 2008-09, and the platform went live in 2009. My co-founder Chandrashekhar and I noticed that the mutual-fund market in India was highly fragmented and dominated by individual distributors.

The concept of fintech was emerging, and we wanted to create a mutual fund platform for retail investors. Over time, we expanded it to offer stocks and other products, but mutual funds remained our focus.

You left FundsIndia in 2019. What prompted that?

Several events, mostly unpleasant, led to our departure. FundsIndia was transitioning to a new stage, and both Chandrashekhar and I felt it was time to move on, that we had done our part. I co-founded PrimeInvestor to continue our work in financial research and advisory.

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Tell us about PrimeInvestor.

After I left FundsIndia, Vidya Bala, Bhavna Acharya and I wanted to provide high-quality, independent research and recommendations to retail investors. As we were heading the research team at FundIndia, we wanted to do something together.

PrimeInvestor offers insights on mutual funds, ETFs, stocks, bonds, deposits and insurance. We don't manage portfolios or handle transactions but focus on helping investors make informed decisions.

We didn't want to reinvent the wheel by creating another transaction platform. We wanted to create a platform where people could get the best research and recommendations for their investments.

What do you think of the current lot of online platforms and fintech apps? Many of them sort funds by their returns over one and three years.

The financial-services industry's message to the market can often be muddled or misleading. The market demands certainty and assurance, but predicting returns is impossible. This gap between expectations and reality is sometimes bridged with vague statements that reassure investors but aren't necessarily accurate.

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Despite improvements, there's still a need for better communication and transparency in the industry. It's an evolving situation and it's getting better.

I have spoken to investors over the past 15 years. I know what they seek and what tempts them. It's not completely the fault of the industry. If you take the example of mutual funds, you cannot predict the returns at any level or any category, be it equity or debt.

What are your portfolio returns over the last 15 years?

About 13-15% CAGR consistently.

Do you have health insurance?

Yes, I have a basic policy covering ₹10 lakh and a top-up policy covering ₹25 lakh, which includes my entire family.

Do you have term insurance?

I did, but it was recently cancelled as I now have sufficient assets.

You said earlier that you've had some accidents with stock investing. Could you elaborate?

My very first investment was in 1998. I had just started making money and saved about $5,000 while working in the US. My first stock was Intel Corporation. I bought it at $51 and sold it for $53. But my overall experience with direct stock-picking has been mixed, to say the least.

After the dotcom crash, I was working in a technical team dealing with software. We were using a service-side software called WebLogic that was ubiquitous at the time. Every company I knew was using it as middleware with Oracle on the backend and basic JavaScript on the front end. I was so enamoured with this company that I bought the stock. I had been reading advice to invest in what you know and are positive about.

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Within two years, the stock crashed as its finances were poorly managed. Even with good ideas, stock-picking can go awry. The few times I was successful, the gains were too small to matter and were largely due to luck rather than skill.

The only time I did well with stocks was when a team of researchers provided me with a portfolio of 10 stocks. Over time, these stocks yielded around 12-13% annualised returns. While not extraordinary, it was comparable to returns from mutual funds.

I have lost a significant amount of money picking stocks directly. In the IPO a few years ago, I tried to stay away but was tempted by a Chennai-based SaaS company that launched its IPO in the US. I invested, and like with many, the outcome was disappointing.

Stock-picking can be fraught with challenges related to valuation, corporate governance and other factors that are not directly visible. My experiences taught me that I was not skilled at stock-picking. Now, I structure my investments like a pyramid: the base consists of mutual funds, bonds and ETFs. Stocks occupy a small portion at the top to keep me engaged with the market. This pyramid structure has been the key takeaway from my investing journey.

Did you try your hand at futures and options as well?

No, I didn't. It was clear that if I wasn't good at stock picking, I wouldn't be good at F&O either.

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