Making it Simple: How not to choose a Mutual Fund?

Nutan Gupta

08 Jun 2017

New Page 1

Live in the present! And with that as a motto, the millennials today miss out on the very essential of saving for the future. There was a time when parents and grandparents thought about the golden future that they wanted to offer to their children while parents today think about a golden present. Has the concept changed? No, not really. Similarly, our investment plans have changed for our better today and a brighter tomorrow. Earlier investment choices were limited but today we have a plethora of options to fall back on like Mutual Funds, Equity, Tax Saving Schemes so on and so forth.

There was a time when the idea of investment was subjected to our family and friend’s advice and minute scrutiny, opting for services only in the end. Today, mindsets have changed and so do people’s financial goals and approaches. Today no one invests in a mutual fund after looking at its 10-15-year track record. Neither the decision to pick a star fund manager is based on the performance of the fund. Those times are over. Post the recession of 2008 and the ushering of the new young millennials in the HNI bracket, star fund houses and star fund managers both find the current market scenario exciting and tough to work in. They have realised that in volatile time like these they need to rework on their philosophies and strategies to constantly keep up with the ups and downs of S&P and BSE Sensex.

2016 has not been fairly accommodating too in its ways, hence, the ideal way to go forward is to look back at the basics and avoid the bad mutual fund schemes. The Indian mutual funds industry is worth more than 16-trillionRs and it has about 700 debt funds and more than 500 equity funds. So, how do you ensure you pick the cherry and avoid the lemons. We decode it for you with simple logic and reasoning.

Performance is Fleeting & Deceptive:

Funds are not expected to outperform every day. While some outperform their peers in years, others find it excruciatingly difficult to live up to the expectations they began with. The local and global economic policies have a major role to play in the performance of mutual funds and therefore choosing a mutual fund based on the scheme’s past returns is not enough.

Last year demonetization affected the performance of many funds. With no money in the hands of the public there was little that could be done to save the situation. Therefore, the right way to pick a mutual fund is by looking at its rolling returns. This strategy makes appropriate sense in the long term as it allows people to evaluate the fund’s performance accordingly. Funds losing out their sheen due to market linked factors is a temporary slip but if its performance was affected due to a bad decision or mistakes of the fund manager than that fund needs to be completely avoided.

Select A Good Fund Manager:

Loyalty is a thing of the past and therefore fund managers, too keep on shifting from one fund to another. Don’t choose a fund or leave it because of the change in its fund manager. The change brings in suffering but that is only transitory. So, it is better to select a fund that aligns with your goals, policies, fund house and its processes rather than aligning with a fund managers. A change in the above should definitely make you head towards a change but not before that.

Change of Strategy

As we rightly pointed out that fund managers keep on shifting, their working style, strategy and decisions make a difference and bring about a change in its performance. Although the intentions of the new fund managers in doing the new is good but people more often lose on the reasons with which they initially invested in a selected fund due to this change in the management style. Staying invested during these times is not a bad move but if one thinks things are going awry, it just makes the right sense to not go for that fund.

Every investor has its own goals, philosophies and preferences, we advise that your decision to invest is based on a thorough research rather than a quick fleeting glance on the superficial performance. Read and learn more to invest wisely.

Have Referral Code?

Similar articles

  • Responses
  • Patidar Samaj

    - 2 hrs ago

    This article claims RJio was given a "Backdoor Entry" into the 4G Based Voice Routing. The peculiar aspect is without the Voice License, Rjio would have been a mere ISP. With the license, it is now a holistic communications service provider, with ability to exponentially scale the bouquet of products. The events indicate it was meticulously planned way before the auctions because the auctions were clear on the agenda: 4G for internet only.

Load More
mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


Banner

Making it Simple: How not to choose a Mutual Fund?

Nutan Gupta

08 Jun 2017

New Page 1

Live in the present! And with that as a motto, the millennials today miss out on the very essential of saving for the future. There was a time when parents and grandparents thought about the golden future that they wanted to offer to their children while parents today think about a golden present. Has the concept changed? No, not really. Similarly, our investment plans have changed for our better today and a brighter tomorrow. Earlier investment choices were limited but today we have a plethora of options to fall back on like Mutual Funds, Equity, Tax Saving Schemes so on and so forth.

There was a time when the idea of investment was subjected to our family and friend’s advice and minute scrutiny, opting for services only in the end. Today, mindsets have changed and so do people’s financial goals and approaches. Today no one invests in a mutual fund after looking at its 10-15-year track record. Neither the decision to pick a star fund manager is based on the performance of the fund. Those times are over. Post the recession of 2008 and the ushering of the new young millennials in the HNI bracket, star fund houses and star fund managers both find the current market scenario exciting and tough to work in. They have realised that in volatile time like these they need to rework on their philosophies and strategies to constantly keep up with the ups and downs of S&P and BSE Sensex.

2016 has not been fairly accommodating too in its ways, hence, the ideal way to go forward is to look back at the basics and avoid the bad mutual fund schemes. The Indian mutual funds industry is worth more than 16-trillionRs and it has about 700 debt funds and more than 500 equity funds. So, how do you ensure you pick the cherry and avoid the lemons. We decode it for you with simple logic and reasoning.

Performance is Fleeting & Deceptive:

Funds are not expected to outperform every day. While some outperform their peers in years, others find it excruciatingly difficult to live up to the expectations they began with. The local and global economic policies have a major role to play in the performance of mutual funds and therefore choosing a mutual fund based on the scheme’s past returns is not enough.

Last year demonetization affected the performance of many funds. With no money in the hands of the public there was little that could be done to save the situation. Therefore, the right way to pick a mutual fund is by looking at its rolling returns. This strategy makes appropriate sense in the long term as it allows people to evaluate the fund’s performance accordingly. Funds losing out their sheen due to market linked factors is a temporary slip but if its performance was affected due to a bad decision or mistakes of the fund manager than that fund needs to be completely avoided.

Select A Good Fund Manager:

Loyalty is a thing of the past and therefore fund managers, too keep on shifting from one fund to another. Don’t choose a fund or leave it because of the change in its fund manager. The change brings in suffering but that is only transitory. So, it is better to select a fund that aligns with your goals, policies, fund house and its processes rather than aligning with a fund managers. A change in the above should definitely make you head towards a change but not before that.

Change of Strategy

As we rightly pointed out that fund managers keep on shifting, their working style, strategy and decisions make a difference and bring about a change in its performance. Although the intentions of the new fund managers in doing the new is good but people more often lose on the reasons with which they initially invested in a selected fund due to this change in the management style. Staying invested during these times is not a bad move but if one thinks things are going awry, it just makes the right sense to not go for that fund.

Every investor has its own goals, philosophies and preferences, we advise that your decision to invest is based on a thorough research rather than a quick fleeting glance on the superficial performance. Read and learn more to invest wisely.

Have Referral Code?