How to Pick Mutual Funds the Right Way: Amit Jain’s Practical Step-by-Step Rulebook

In a market flooded with over 4,000 mutual fund schemes, choosing the right ones can feel overwhelming for most investors. In a recent insightful episode of Finance With Sharan, host Sharan Hegde sits down with Amit Jain, a seasoned investment professional with more than 12 years in global capital markets and Co-Founder of Ashika Global Family Office Services. Jain, who advises ultra-high-net-worth individuals on portfolios exceeding ₹100 crores, shares a no-nonsense, step-by-step approach to selecting mutual funds and ETFs that prioritizes future potential over hype.

Rather than chasing yesterday’s top performers, Jain urges investors to adopt a disciplined, quality-focused mindset. His core philosophy boils down to this: Identify strong companies trading at attractive prices, then select funds that overweight those names. This method aims to generate alpha with controlled risk, especially in India’s dynamic equity landscape.

Step 1: Ditch the Obsession with Past Performance

One of the biggest mistakes investors make is judging funds solely by historical returns. Jain warns that past success often signals saturation rather than sustained opportunity. He draws an analogy from real estate: Properties in Delhi’s Connaught Place delivered massive 50x returns from the 1980s to 2005, but the next two decades brought stagnation. Shifting focus to emerging areas like Gurugram yielded far better results.

“We always invest on the future potential rather than going for the past performance,” Jain explains. He stresses analyzing whether a sector or stock is peaking or poised for the next growth cycle.

Step 2: Hunt for Mispriced Quality Stocks

Jain’s practical screening process starts bottom-up. He identifies 6–10 high-conviction stocks with strong 3–5 year upside potential—often “mispriced quality” names within broader indices like the Nifty 200. Examples include undervalued petrochemical or FMCG stocks that have outperformed the index significantly.

Once these quality picks are shortlisted, he selects mutual fund schemes that allocate meaningful weight to them. Theme alignment matters more than the asset management company’s (AMC) brand name. “Be very clear on your theme and stocks on which you are bullish… try to see which mutual fund scheme carry those stocks with the right weightage.”

Step 3: Follow the Age-Based Allocation Mantra

For portfolio construction, Jain offers a simple, age-linked heuristic to balance growth and stability. “Whatever your age is—say your age is 30—then 30% of your portfolio should be into large cap and this 70% of your equity mutual fund portfolio should be in midcap and small cap.”

As investors age, large-cap exposure should increase (e.g., 40% at age 40) to reduce volatility. This rule helps younger investors capture higher growth from mid- and small-caps while older ones prioritize capital preservation.

Step 4: Keep It Simple—Limit Your Funds

Jain advises against over-diversification. Most schemes already hold 50–60 stocks, diluting returns. Instead, build a concentrated yet diversified portfolio with just 4–5 funds: one large-cap, one mid-cap, one multicap or flexi-cap, and perhaps an ETF or two.

“Pick not more than four to five mutual funds in your overall portfolio… large cap, midcap, multicap and you can have some ETF and some should be good enough.”

Step 5: Embrace ETFs as the Underrated Powerhouse

ETFs often fly under the radar but offer compelling advantages: lower expense ratios (as low as 20 paise), reduced volatility, and efficient exposure to themes or global markets. Jain highlights their role in building a core portfolio, especially for international diversification.

Broader Insights: Global Shifts, Cash, and Advisors

Looking ahead, Jain points to a tectonic shift in global growth drivers—from traditional BRICS economies to emerging “VIPek” markets (Vietnam, Indonesia, Philippines, India, China). He suggests India remains attractive at reasonable valuations compared to premium-priced US markets, while Europe lags due to demographic and structural challenges.

On timing, he advocates holding cash during fairly valued or overvalued periods (as seen currently in equities, real estate, and gold) to pounce on micro-opportunities. Real estate, including REITs yielding 7–9%, remains viable but not explosive like past decades.

For most retail investors, Jain strongly recommends professional advice. Wide performance gaps exist even within categories (e.g., large-cap funds ranging from +16.9% to +9.4% in a year; small-caps from +8% to -12%). A skilled advisor can add 5–10% extra returns by avoiding behavioral pitfalls—making a 1% fee worthwhile.

“Only your adviser who knows stock market well can help you… it’s a pennywise pound foolish [to skip advisors].”

Final Thoughts

Amit Jain’s rulebook cuts through the noise with timeless principles: Prioritize quality companies bought at reasonable prices, align funds with your convictions, stay simple, and think long-term (3–5 years). In a world of cycles and hype, this grounded approach—focusing on future potential rather than past glory—offers a clearer path to sustainable wealth creation.

Whether you’re a beginner overwhelmed by options or an experienced investor refining your strategy, these steps provide a practical framework to navigate India’s mutual fund universe more confidently.

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