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

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Stocks with a high dividend yield

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India) Stocks with a high-dividend yield can provide investors additional cash flow. More importantly, it is tax-free   With April 2011 just over, the 'earnings season' is well and truly here. This is the time most companies pay out a portion of their profits as dividends to shareholders. Since dividends are tax-free, they are an attractive income source with a select class of investors, who depend on these for additional cash flow. SIGNIFICANCE A company doing well and generating profits will usually be in a position to declare dividends regularly. Hence, a key parameter one should look at whilst investing in a stock is whether the company has a good dividend record. Typically, dividend yield stocks are large-caps and generally not capital-intensive. This is suggestive of the fact that the downside risk on...

For Retirement Invest in growth Assets

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   Last week, I wrote about the need for retired investors to have a growth component in their corpus to fight inflation. In the financial advisory space, it’s a challenge to convince retired investors to take risks in order to achieve capital appreciation in their portfolios. Many choose a compromised lifestyle and curb their expenses in retirement. What should they do instead? There are only two ways to create a large corpus: saving a large part of the income, or investing the saving in growth assets. In a country of savers, the first has been the natural choice. However, the second deserves attention. An investor who is saving for retirement is trying to replace the human asset with an investment asset that will generate the require...

HSBC MIP Savings Fund dividend

Invest HSBC MIP Savings Fund Online   HSBC Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) HSBC Income Investment-DQ 0.1733436 HSBC Flexi Debt Direct-DQ 0.18056625 HSBC Flexi Debt-DQ 0.18056625 HSBC MIP Regular-DQ 0.18056625 HSBC MIP Savings-DQ 0.2022342 HSBC MIP Savings Direct-DQ 0.2022342                     The record date has been fixed as June 27, 2016.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan I...

Systematic withdrawal plan

  Start Systematic withdrawal plan Online Although an SWP gives you regular income and saves on taxes in the long term, you cannot open an SWP on a scheme where you have an ongoing SIP   iStockPhoto If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested to get regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens' Savings Scheme and monthly income plans (MIPs). A lesser known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is. WHAT IS SWP? Many of us would be familiar with a systematic investment plan (SIP ), where a corpus ...
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