Skip to main content

Consider factors while picking a Mutual Fund

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Call 0 94 8300 8300 (India)

Several people are convinced about using equity mutual funds as a preferred tool to invest, but they hit a roadblock when it comes to selecting the right fund. Some are promising, but new; others are established, but floundering. The advisers who clamour for trail commissions should be asked to demonstrate proven capability to select good funds for investors. We are not there yet primarily due to limited regulation on what advisers should do and how they earn their income. Investors end up buying funds based on past performance, which may not be repeated, as the fund houses themselves point out.


The focus for the investor should be on selection from the peer group, which these lists enable. A fund's performance may fall along with the markets in which it invests. Even the best equity fund may not post a positive return when the equity market return is negative. The decision at this point is an asset allocation decision-whether to remain in equity or not. It should not be confused with the fund selection decision, which is about choosing the right fund among peers that may be impacted by the market too.

First, there are funds for which you don't need to take a view; in case of others, your view matters. For example, if you buy a diversified equity fund investing in both large- and mid-caps, you leave it to the fund manager to take a view on the segment that will work well, and allocate accordingly. If you buy a fund that focuses on the mid-cap segment, you are going for a diversified portfolio, but are implementing a view on how midcaps will perform. Make sure you understand where you need to have a view and where the fund manager can do it for you.


Second, ensure you invest in the best. The simplest way to choose a good fund is to use its performance ranking. If your fund is 8/40, it is a top quartile fund (25% of 40 is 10, so funds up to the rank of 10 are top funds in this category). It is important to stick to funds that are above average, preferably top quartile funds. Check this ranking across time periods. This data is publicly available with fund research agencies such as Value Research. Funds that do not even beat the market index are not worth buying, but those that compete efficiently and stay ahead of the pack most of the time, are the favourites.
Third, do not look for consistency, that is, a fund that is always at the top of the league. In the 25-year history of competition in the mutual fund industry, there is no single fund that has stayed in the top quartile at all times. This is because different strategies work in different kinds of market cycles. Value funds, for example, will slip if the market is driven by growth. Slipping is not an issue, look for corrective action. Check how soon the fund bounced back after slipping. Your fund should stay in the top 50% mostly, not in the bottom 50% for over a year. In your yearly review, knock out the fund if it slipped for four quarters in its ranking.


Let's consider three qualitative factors to look for once you have chosen your fund based on peer ranking. First, the fund should clearly say where it will invest and how. Most fund objectives are hazy and fund managers tend to give themselves too much leeway on how they will generate returns. Without being too restrictive, if the fund says that it will invest in a diversified portfolio of equity shares, across sizes, it is good enough. To the investor, what matters is the manager's ability to select stocks carefully, manage sector exposure, and deliver a return that beats the benchmark index.


Second, the fund should demonstrate the ability to stay honest to its objective. Some funds are termed value-oriented, but most stocks they hold would not qualify. Some funds will tell stories about their ability to pick failing companies and turnaround stocks. These stories do not happen every day, and these funds degenerate to a diversified equity fund with a fancy name. Do not pick funds with vague objectives and strategies; they show erratic performance and corrective action is mixed.


Third, the fund house should have an investment philosophy that permeates most of its products. It is not possible for a fund manager to adopt diametrically opposite approaches to two products managed by the same fund house. If it has both value and growth products, see if the fund managers are different.

 

Some funds label such differences clearly and are transparent about how they function. In most cases, in order to push a new product, a fund house may come up with a fancy investment style, but not pursue it. Try and understand how the fund house does its job and choose the funds aligned to a stated philosophy. Ensure you buy into a specified, comparable, competitive product that is managed transparently. Review annually and replace laggards. Leaders fight to persist, but laggards always find the climb back tough. 

Happy Investing!!

 

We can help. Call 0 94 8300 8300 (India)

 

Leave your comment with mail ID and we will answer them

                        OR

You can write back to us at prajnacapital [at] gmail [dot] com

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

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

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...

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...

Mirae Asset Ultra Short Term Bond Fund and Mirae Asset Tax Saver Fund

Mirae Asset Mutual Fund   has renamed   Mirae Asset Ultra Short Term Bond Fund , an open ended debt scheme, to   Mirae Asset Tax Saver Fund   with effect from October 18, 2016. Also, Mr. Sumit Agrawal, the co-fund manager of Mirae Asset India Opportunities Fund (MAIOF) and Mirae Asset Great Consumer Fund (MAGCF) ceases to be the fund manager with effect from October 1, 2016. Consequently, MAIOF shall now be solely managed by Mr . Neelesh Surana while MAGCF shall continue to be co-managed by Mr. Neelesh Surana and Ms. Bharti Sawant. ------------------------------ ----------------- 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 Saver 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. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. ID...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...

How to Stop your MF SIP

  How to Stop your Mutual Fund SIP A systematic investment plan (SIP) is designed to continue till the end date mentioned in the application form. A few mutual funds now offer the option to `pause' the systematic investment for a limited period. This allows the investor to keep the investment habit, while providing temporary liquidity. The SIP restarts automatically after the pause period. Pause period SIPs can be paused only for a specific period of time. The shortest and longest periods for which a SIP is allowed to be paused is specified by the AMC . Form A SIP Pause form must be filled out by the investor. This form can be obtained from the AMC or the Investor Service Centre . It can also be downloaded from the mutual fund website. Details The start date and end date of the pause must be clearly mentioned in the form. The form also asks for details of the existing SIP, as well as the investor's name and folio number. All unit holders are required to sign the SIP Pause ...
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