Managing Money with Moneycontrol | Here's how to choose the best mutual fund from available options

Moneycontrol PF team

In this episode of Managing Money with Moneycontrol, we tell you the best mutual fund options available for you to invest. In the accompanying video, Manoj Nagpal, Consulting Editor and Founder, Outlook Asia Capital, shares actionable insights even as market is trading around record highs.

What should mutual fund investors do in the current market situation?

The last one year has seen a complete change in market leadership — both in the number of stocks in the equity markets and also in terms of the sector which are driving the market. Both have become very narrow at this point of time and investors need to take note of this and they should also tune their portfolio if they want to continue generating returns in the future. Sectors like IT, pharma and consumers which are primarily discretionary spending people are driving the market up with a very select number of stocks doing that. Because of this what is happening is that mutual funds have started seeing a few headwinds and the performance has been dragging a little bit getting investors low returns. However, if the investors tune in their portfolio's with the changing trends, they can still get the benefit of going forward in the future.

Many mutual funds are underperforming the benchmark since last year. How does one justify the underperformance and should mutual fund investors be concerned at this point in time?

This is again a very important point, the last one year has seen a significant underperformance by mutual funds. Mutual funds typically tend to outperform the equity market and the benchmark indices. In the last one year, specifically, in the last 3-4 months, mutual funds have started seeing an underperformance but if you have invested for a long term it should not be a cause of concern for you. This is primarily happening because the overall market is going into a consolidation range and it has become a stock selectors market so very few stocks are driving up the market index levels. This kind of period does not last for long and we believe strongly that long-term investors should not worry about this trend and mutual fund investors will continue to outperform the markets if they continue to hold their investment for the next five to ten years.

How should investor selects mutual funds to show consistent performance over time frames and create wealth and at the same time feel as secure as we used to when we invested in FDs in earlier days?

This is a cardinal mistake that investors do. You should not move your money which is for the short term and it is for your liquidity requirements which you keep in FDs to SIPs. If you are looking at SIPs, your time horizon has to be a minimum of 5 years to 10 years. If your horizon is not 5 to 10 years that money has to stay in fixed deposits in a bank or in liquid funds which will be available immediately for you. So do not mix these two buckets. You should clearly have a short-term bucket and a long-term bucket of your investments. Only the money which you can spare for long-term, you should put in equity mutual funds, specifically, in SIPs. Most people have started SIPs in the last one year and are now asking the question to themselves. SIP should be only done if the tenure is at least of 10 years. However, if you are not thinking in that way, it will not be a tool that can create short-term wealth for you. However, if you keep it for the long term, it will definitely give good returns as you go by.