Skip to main content

Mutual Funds Create Wealth with Active Portfolio Management

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Such funds follow a sound investment strategy, reduce downside in bad times and deliver superior returns when markets go up


Investors include equities in their portfolios because they know, or they have been told, that is the best way to generate higher extra returns. But in the last five years, equity has underperformed other asset classes, including fixed income and gold. Nifty Index has delivered 3.54% returns in the last five years as on June 7.

The CRISIL SPIVA report for December 2011 points out that 65% of the large-cap equity mutual funds have underperformed Nifty during the period. In such a scenario, investors often wonder whether it really makes sense to invest in actively-managed funds and pay a higher fee to a fund manager to take care of the money when he or she can't even beat the index. Information asymmetry remains a peculiar feature of Indian markets, which gives ample scope for active management of fund. You should invest in well-managed equity funds with a long track record for reasonably high returns than the index over the next five years.


Don't laugh at that statement. In fact, there are around 13 diversified funds that have delivered double-digit returns during the last five years.


For beginners, an actively managed fund prefers to buy stocks using an investment strategy — it could be value, growth, quant or mix of all — to generate returns in excess of the markets.


This is diagonally opposite to an index fund, which prefers to replicate the index in its portfolio. Index funds are popular in developed markets, which are information-efficient.

But Indian markets are different. Indian investors still prefer to be with actively managed funds. Of the . 1,48,310 crore invested in equity funds, only . 4,217 crore are invested through index funds, as per May statistics. An index fund assures you exposures to the underlying index at the least possible cost. But it has its own disadvantages. As the fund manager remains invested in all times, there is no opportunity to book profits. And there is no question of making more returns than the broader market. An active fund manager tries to do exactly that.


An active fund manager aims to bring in alpha — excess returns over market returns — by sector selection and stock selection after rigorous research. By modifying allocation to particular sectors, the fund manager can increase the beta of the portfolio to help the fund participate in rallies. Towards the end of CY2011, some fund managers picked up infrastructure companies at attractive valuations, which moved much faster than the market when the market turned up in the first quarter of CY2012.


If the fund manager senses weakness in the market, he may choose to reduce the beta of the portfolio to contain the downside. He may choose to look at defensive sectors in such times. For example in early 2011, some seasoned fund managers preferred to go overweight on FMCG stocks to defend their portfolios. Of course there is a more aggressive strategy too.
A fund manager can occasionally take cash calls, too, if he senses a steep correction. When the market is moving down, keeping some part of the portfolio in cash certainly limits downside. Of course, the fund manager has to be careful with cash calls, as a sudden rally in stocks can pull down the scheme's performance. Many funds restrict their cash exposures to a maximum of 10% to limit this risk.


A good actively managed fund should reduce the downside in bad times and deliver superior returns than the market returns in the long run. In most cases, a value-oriented investment strategy should work better than a momentum-chasing one. The 13 schemes that have offered double-digit returns over the last five years include six schemes that have clearly defined their investment strategy to be value-driven. Disciplined approach towards money management seems to deliver for most of these schemes.


The investing community, too, has taken cognizance of this performance and has rewarded the winners. The days when each new fund offer would raise a few hundred crores are long gone. Nowadays, schemes that have a good track record and are managed by a fund house that has got its processes in place gets most of the new investments. Six of the 13 schemes that have performed well over the last five years have more than . 1,000 crore assets under management. HDFC Top 200, the largest equity diversified fund in India with . 11,381 crore in assets, also appears on the list.


The abolition of entry loads on mutual funds has left distributors with trail commission as the only reliable source of income. To earn consistently, professional distributors prefer to be with schemes that have shown good performance.


It is the time to steer clear of schemes showing occasional spikes in performance. As the markets show some signs of recovery on talks of possible improvement in liquidity and cash flows to India from developed world, investors would be better off being with time-tested actively managed funds to ensure long term wealth creation.

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Time-tested methods to pick a good mutual fund

Proper understanding of a fund is important as it enables investors to keep a tab on its actual performance THERE are various types of mutual funds and one way of segregating them is on the basis of active or passive management. Th is makes the understanding of the nature of the fund easy for a lot of investors, as it shows the basis on which investment decisions will be made. Some funds also have a mixture of both active and passive management. Su ch funds need to be considered carefully if they are to be selected as an investment avenue. Here is a look at the manner in which such funds operate and its impact on decision-making. Mixture : The selection of the portfolio of an equity oriented mutual fund can be done in an active manner. The fund manager can take the decision about which stocks should be bought and sold by the fund. On the other hand, there can be a passive fund where the decision making is not in the hands of the fund manager as a specific index is followed for...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

Diversification is key to gain more

Even those who prefer debt for its safety are looking at more options    It is not often that you find more than a couple of asset classes producing good returns at the same time. Invariably, assets such as gold and equity don't perform in tandem, and hence it was easier to allocate to them in line with the risk profile of the investors. In the last couple of quarters, however, more than one asset has turned attractive - gold, debt and equity. In line with the trend, you even have monthly income plans with a combination of more than two assets.    In the past, those who stuck to debt were a different class of investors who didn't wish to take risk with their money. The changing lifecycles and the growing integration of investment markets across the globe have pushed even individual investors to embrace the concept of asset allocation. Hence, you have individuals who were using debt to park profits being prepared to take advantage of other assets.    For instance, when the...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now