Sticking to investment goals and investing in funds that cater to their needs will help investors
THE Indian mutual fund industry is at the cusp of change. Even as asset management companies (AMCs) line up new products, thousands of independent financial advisors have stopped selling MF schemes as it is no longer remunerative following the ban on entry loads. Given the absence of enough advisors, it is up to the average investor to educate himself on what is good and bad for the health of his portfolio and take steps accordingly. Here are a few suggestions:
LARGE PORTFOLIO
Every time a new fund offer is launched, ad blitzkrieg by fund houses underlines the importance of the fund. Despite their constant refrain that the past is not an indication of the future, some funds use historical data to back-test products to show investors how the new scheme (with the wisdom of hindsight) would beat others. Even some fund managers encourage investors to switch to the new scheme. As a result of this marketing overdrive, new fund offers do manage to draw some investments.
For an investor, every new scheme invested bloats the size of his portfolio ultimately making it too unwieldy to track investment performance. Needless to say the investors' focus then shifts from achieving financial goals to managing portfolio statements. The only remedy is to stick to clear goal setting and investing in funds that really cater to your investment needs. We advise investors with a portfolio of up to Rs 10 lakh, to have a maximum of 10 schemes in their portfolio, belonging to five different AMCs. While 50-60% of the portfolio, could go to large caps, 20-30% could go to mid caps and small cap, with the balance 10-20% going to thematic schemes
DISTRIBUTORS GALORE
The ban on entry loads has resulted in commissions all but disappearing. As a result, there are not many distributors willing to offer you mutual funds. The only distributor left are the brokers and banks. This results into confusion at the level of advisory. If the advisor is not aware of all your investments or mutual fund holdings he may not give you a correct advice though he desires to do so.
Hence it makes sense to identify the professional advisors who are willing to take some extra effort for client's betterment. Consolidating the fund holdings with one broker helps him understand your entire portfolio. The one with whom you consolidate all your holdings get to earn 'trail commissions' and such earnings work as a real incentive for such professional advisors. Remember that there are no free lunches. If you come across a good advisor be prepared to pay for his services.
TOO MANY THEMES
This is particularly true in mutual fund investing. Every time a theme clicks with one fund house, others queue up similar offerings. These 'me too' offerings create a recurring noise and brings the investors live the most fatal emotion on Dalal Street – the feeling of being left out. This results in themes that have narrow investment universe and offering not enough freedom to fund managers. Investors going for the theme funds must know that they have to get the timing right for the entry and exit from the theme funds.
Not all investors have the necessary understanding of the themes playing out in the market. In such circumstances it makes sense to better let the fund manager to decide which particular theme he would like to play and the weight assigned to that theme. In most cases a good diversified equity fund with an established track record is better positioned to identify a theme and invest in it without compromising on the risk management parameters.
AVOID WHAT IS POPULAR
We keep hearing about the sectors with favourable outlook. Stocks in such sectors keep going up on the back of rising investors' interest. Fund houses also feed the fire with sectoral or thematic offering. Popular themes in most cases have factored in the future growth in the prices of the assets
