Mutual fund on your mind? Here’s how not to burn cash in market
, ETMarkets.com|
Updated: Nov 13, 2017, 04.06 PM IST
NEW DELHI: Search for the term ‘mutual fund’ is hovering at its highest level in the last five years in Google Trends in India as well as rest of the world.
If you look for any word in Google Trends, it would give result on the scale of 0 to 100. On this scale, the word ‘Mutual Fund’ scored 99 last week, whereas multibagger and SIP scored 96 and 91 for the week ended November 11.
A value of 50 means that the term is half as popular. In other terms, we can say that lower the scale lesser the popularity.
With rising awareness, search for the word ‘mutual fund’ on Google has reached the highest levels in five years when markets are hovering at the levels never seen before.
If you are also looking for a mutual fund, which suits your investment need, then you should first decide on your financial plan and goals, and avoid taking any tips from your friends and relatives.
Vidya Bala, Head, Mutual Fund Research, FundsIndia said, “First things you look for selecting a mutual fund is time frame. Not knowing your time frame means you may end up with choosing a wrong fund. Secondly, one should not chase chart topers. High performing fund at present does not necessarily give you robust return in future also. One should look for funds with track record of three to five years. Investor should also understand where the fund will invest and what are the risks associated with it.”
“If you don’t track markets on regular basis then you should avoid sectoral funds. Don’t simply buy a fund what your friend or relative advised. You time, risk profile, goal and saving capability determine which mutual suits you,” said Bala.
Even before you set out to decide where to invest your money, you need to know what you want it to do for you. If you cannot do this on your own, identify a financial planner who can do this for you. If this is not done properly, failure is assured.
Once you have decided on your plan, you need to decide whom to entrust the money with. An asset management company should have strong experience in the financial arena. Next you should check fund manager’s experience in managing mutual fund etc. Also, frequent changes of fund managers can be very detrimental to consistency of returns.
The fund house should have robust investment processes, laid down in clear unambiguous terms. This would eliminate the possibility of individual whims and fancies affecting the investments of the fund.
Avoid funds, which are highly concentrated, as they carry a higher level of risk. The failure of single security can lead to a huge erosion of investment value.
On the other hand, if the portfolio is heavily diversified, then even if a single security or many securities outperform significantly, the impact on the overall returns will be very marginal.
Look for funds, which have neither too little not too much of AUM.
Avoid funds, which are highly volatile in their returns. Funds which fall greatly when markets fall can lead to huge value erosion and the fund manager may have to take risky bets to earn to cover the loss.
Lastly, one should also zero in on the benchmark returns of the fund and compare the returns with the scheme return.
Comparison of scheme return with the benchmark return is the best way to know the performance of the fund.
Then one should compare the returns of the fund with similar kind of fund existing in the market of different fund houses.
If you look for any word in Google Trends, it would give result on the scale of 0 to 100. On this scale, the word ‘Mutual Fund’ scored 99 last week, whereas multibagger and SIP scored 96 and 91 for the week ended November 11.
A value of 50 means that the term is half as popular. In other terms, we can say that lower the scale lesser the popularity.
With rising awareness, search for the word ‘mutual fund’ on Google has reached the highest levels in five years when markets are hovering at the levels never seen before.
If you are also looking for a mutual fund, which suits your investment need, then you should first decide on your financial plan and goals, and avoid taking any tips from your friends and relatives.
Vidya Bala, Head, Mutual Fund Research, FundsIndia said, “First things you look for selecting a mutual fund is time frame. Not knowing your time frame means you may end up with choosing a wrong fund. Secondly, one should not chase chart topers. High performing fund at present does not necessarily give you robust return in future also. One should look for funds with track record of three to five years. Investor should also understand where the fund will invest and what are the risks associated with it.”
“If you don’t track markets on regular basis then you should avoid sectoral funds. Don’t simply buy a fund what your friend or relative advised. You time, risk profile, goal and saving capability determine which mutual suits you,” said Bala.
Even before you set out to decide where to invest your money, you need to know what you want it to do for you. If you cannot do this on your own, identify a financial planner who can do this for you. If this is not done properly, failure is assured.
Once you have decided on your plan, you need to decide whom to entrust the money with. An asset management company should have strong experience in the financial arena. Next you should check fund manager’s experience in managing mutual fund etc. Also, frequent changes of fund managers can be very detrimental to consistency of returns.
The fund house should have robust investment processes, laid down in clear unambiguous terms. This would eliminate the possibility of individual whims and fancies affecting the investments of the fund.
Avoid funds, which are highly concentrated, as they carry a higher level of risk. The failure of single security can lead to a huge erosion of investment value.
On the other hand, if the portfolio is heavily diversified, then even if a single security or many securities outperform significantly, the impact on the overall returns will be very marginal.
Look for funds, which have neither too little not too much of AUM.
Avoid funds, which are highly volatile in their returns. Funds which fall greatly when markets fall can lead to huge value erosion and the fund manager may have to take risky bets to earn to cover the loss.
Lastly, one should also zero in on the benchmark returns of the fund and compare the returns with the scheme return.
Comparison of scheme return with the benchmark return is the best way to know the performance of the fund.
Then one should compare the returns of the fund with similar kind of fund existing in the market of different fund houses.
