Tag: Mutual Fund

Convert your Mutual funds into demat form

Posted on by Jagoinvestor

Do you have all your mutual funds investments in different companies and are looking for aggregating them at a common place? If so, there’s some good news for you. Now you can convert all your existing Mutual funds into demat form, which means that you can now have it electronically stored in your demat account, just like shares! Note, that once your mutual funds are in demat form, you can sell them either through stock broker platform (your demat account) or through the normal way of selling it through your Depository participant (like you do, right now.)

Advantages of converting your Mutual funds into demat form ?

1. Centralization : Once you convert mutual funds in demat form, you will then get just a single statement for your holdings. Right now, if you have investments in say 10 AMC’s, you must be getting statements from all those AMC’s. How to choose a good mutual fund

2. Monitoring : Once you have all your mutual funds at one place, you will be able to monitor them better, & you can see the performance at one go. Compare that to when they were at different places; we tend to be lazy to look at all of them and just keep ignoring them.

3. Fast transactions : : If you have all the mutual funds in demat form, you will be able to sell those mutual funds in stock markets whenever you need money. Mutual funds are now, tradable in stock markets, so you can buy and sell them in stock exchange in real-time. If you don’t have them in demat form, selling them would not be as convenient.

Steps to convert your Mutual funds into demat form

a) Obtain and sign DRF : The first step, is to ask your demat provider (like ICICIDirect, Sharekhan, Reliance Money) for a ‘Dematerialization Request Form’ (DRF) for conversion of mutual funds units held in physical form into demat form. Obtain it, duly fill it and sign it. You should be able to find the DRF form at your demat provider website. [DDET Click here to see a Sample DRF form]Convert your mutual funds into Demat form [/DDET]

b) Sign all the statement of Accounts from your Mutual Funds : You will have to collect the statements from all the AMC’s which have the mutual funds names which you want to convert, once you have them, you have to sign it. You will get all these statements in your email box most probably. This step is important to make sure you have documentary proof that you own those mutual funds and have their names, so if you have investments in 5 different AMCs, you should collect all 5 statements.

c) Submit and Acknowledgement: Submit the duly filled and signed DRF along with and Account Statement issued by the Mutual Fund House to the Depository Participant. Acknowledgement will be given by the Depository Participant for the document acceptance, subject to verification.[DDET Click Here to see all Important points before submitting a Dematerialization Request]

1. The investor should check with their Depository participants (DPs) for the dematerialization Request Form to convert mutual funds units held in physical form into demat form.

2. The details in the DRF, i.e. Name(s), holding pattern and signature should match with the details as appearing in the account statement.

3. The form is duly filled and signed by all unit holders as per the holding nature and is complete in all aspects.

4. All the schemes as available in a folio are mentioned in the DRF and the unit balances as specified are matching with the closing balances available in the folio. No partial units or selected schemes available in the folio will be accepted for conversion.

5. Units requested for dematerialization should be should be free from credit hold, lien or any other hold. In case any units are under hold for want of credit status, conversion will be processed only after clearance of such hold.

6. Dematerialization request should not be submitted if the units are lien or locked for any Income Tax or other legal purpose.

7. Rejection letter will be sent by the Depository Participants if the documents are not in order, units are under lock, or rejected by the Registrar during the conversion process providing reason thereof.

8. Investors can check with their Depository Participant on the status of the request if no intimation has been received within twenty-one days.

9. No separate confirmation letter will be sent by the Registrar for successful transfer of physical units in demat form.

10. Post dematerialization of units the investors can only transact through the stock exchange platform. They will have to approach their broker for purchase / redemption of units.

11. Physical requests received by the Registrar of DSP BlackRock Mutual Fund for purchase/redemption of units will be rejected.

Source : http://www.dspblackrock.com/services/dematerialisation.asp

[/DDET]

d) Processing : The Depository Participant will process the application for conversion of physical units into electronic form. For this, the DP would sent the request form and Statement of Account to the Asset Management Company (AMC) / Registrar and Transfer Agent (RTA).

e) Confirmation : The AMC / RTA will after due verification, confirm the conversion request sent by your DP and credit the mutual fund units in your demat account.

Selling Mutual funds in Demat form

Note that converting the mutual funds will require you to have a demat account first, so incase you don’t have a demat account , you will not be able to convert them , because unless you have a demat account, how can it be stored . Now once you have converted the mutual funds in demat form , you can sell them through your demat account in stock market , which would attract brokerage as per defined by your Depository participant, however you can also sell your mutual funds through the normal old way where you put a request for sell through a Redemption Form .

Conclusion

This is one of those simple and small steps, towards simplifying your financial life. Once you do this, it can motivate you to take further steps in automating many things which will improve your financial life. Dematerialization of mutual funds will make sure your documentation will improve . Let me know if you plan to do this on comments section .. also lets discuss if anything is not covered in article . Has anyone done this already ?

List of Best Equity Diversified Mutual funds for 2010

Posted on by Jagoinvestor

Want to invest in the best mutual funds in India? Read on. I have compiled a short list of Mutual Funds which are top mutual funds in the Equity Diversified category. These are long-term winners in their categories and have proved their performance over the years by beating their benchmark and category average by a good margin. These are non-tax saving Equity diversified mutual funds that are large-cap oriented. Remember that I am giving a list of funds. These are funds that have more than half allocation in large-cap oriented companies and around 50% of their money in the top 3 sectors they hold. Based on these criteria, I am putting 7 best mutual funds along with analysis, some of these are very old and some are relatively newer. (last year list)

List of Best Equity Mutual Funds

Source: valueresearchonline.com

Portfolio & Sector Allocation

All the above funds have returned around 20% or more in different time frames consistently, which is very encouraging when you want to invest in these funds. However our concentration this time is large-cap oriented mutual funds, we are not including funds that have a high concentration in midcap or small-cap funds. Let’s look at these mutual funds share in Large or Giant Companies. My criteria were to have at least 60%+ in Large/Giant Companies and around 50% allocation in the top sectors they invested in. We also have funds expense ratio which is around 2% for each of them. Read Magic of SIP

Source: valueresearchonline.com

Fund Manager and a Brief Overview of Mutual Funds

Past performance is just one of the criteria we can look at, but it’s not enough and not a guarantee of how it will perform in the future. Let’s also look at who manages it and how these funds have done so far overall as per their mandate and investing philosophy. Please note, that we are talking about the Growth option here and not the dividend option.

HDFC Top 200

HDFC Top 200 is one of the most well-known Mutual Funds in the country. It’s an amazing performance of 26% CAGR in the last 14 yrs is proof. 10 lacs invested in HDFC Top 200 since Inception is worth 2.54 crores (non-taxable) today compared to 30 lacs in FD (taxable). Some achievements of funds are that in the 2008 bear market, HDFC Top 200 was able to restrict its fall to 45% only, which was 11% less than its benchmark and 8% less than its category. Prashant Jain is the Fund Manager of HDFC Top 200 and one of the best known and famous Fund managers in the country with a long term experience.

Prashant Jain’s Investment Approach: “The criteria that go into selecting stocks/sectors are quality, our understanding, growth prospects, valuation of businesses and the composition of the benchmark – BSE 200.”. The fund has good 20% allocation in Midcap or small-cap stocks which gives a kicker in returns.

How to look beyond short term returns in Mutual Funds

DSP BlackRock Top 100 Equity

DSPBR top 100 is not a decade old fund, but its performance is strong enough to say that it’s one of the best in the category as of now. The fund has given enough proof of its performance like even in the first year of its launch it gave an amazing 129% return beating its benchmark by an “oh my god” 29% return:). It also showed its capacity to restrict loses in the bear market of 2008  by falling by only 46% compared to its benchmark which fell by 55 %, thereby giving a better performance by 9 %. The best thing I liked about this fund is that this fund has provided very strong performance by mainly focusing on large-cap companies, the fund allocation in Large-cap companies stands at 94% which is outstanding. This clearly shows the competence of Fund manager Apoorva Shah who is managing the fund for the last 3 yrs.

Birla Sun Life Frontline Equity A

This is another winner in the long run. Over the years Birla Sun life frontline equity has consistently outperformed its benchmark by a good margin. During the market falls of 2004, 2006 and the big crash of 2008 and early 2009, This fund was able to restrict downsides better than its benchmark. The fund is largely Large Cap oriented, however the fund is known to take some risks in Midcap space and hence has seen one-quarter and its first year lagging behind its benchmark, but that was not a prolonged behavior, over all it has done great. The main reason it came to top in performance was the entry of Mahesh Patil as the fund manager in Nov 2005.

HDFC Equity

This fund is for long-term investors because HDFC Equity does not hesitate to take risks. Having a good allocation in midcap/small-cap companies, Its performance comes by being invested for long-term, which means short-term volatility in its performance. Being 15+ yrs old fund, have shown its performance over and over again, this one is for people who really like to play with mutual funds on a long-term basis. The fund manager is again star performer Prashant Jain, who took over this fund in 2003 and the fund has never looked back. Just to give you a flavor, the fund in 2009 has given 30% more than Nifty Index and in the last 1 yrs itself, it has given 42% return compared to just 15% from Nifty. You can count this one as an aggressive large-cap fund for investors with a strong heart and long-term vision

UTI Opportunities

As the name suggest, UTI opportunities are for you, only if you a risk taker and like to bet on different opportunities available in the market. As per the mandate of UTI opportunities it looks at the gaps available in the market and the sector and pics the stocks which are really undervalued and might outperform in the future. As per the fund mandate, the Fund manager dynamically shifts between sectors depending on the macro economic outlook and opportunities available in the market. This means the potential of a huge upside as well as the risk of getting wrong. After Harsh Upadhyaya took over in 2007, the fund has done wonders and has given returns double than its benchmark, which is impressive. So if you a kind of investor who likes to take chance on opportunities, UTI Opportunities should be in your Portfolio.

Reliance RSF Equity

Reliance RSF has shown some impressive performance over the last some years. However the fund is fairly aggressive in nature and is known to take risky calls whenever it finds good opportunity, despite being called a large-cap fund, Reliance RSF has large amount (45%)  of portfolio in small and mid-cap stocks at the time of writing this article, The fund did not really do very well when it started, but within a year it came on track and then showed good performance. Remember that this is a risky fund and can be actually compared to mid-cap funds in some sense given its nature of taking risks. So it might not suit you if you like to take long-term calls and want to be on the safe side. The fund is also known to churn its portfolio faster, so be cautious.

UTI Dividend Yield

This fund is really special. UTI Dividend Yield is another gem in the basket of Diversified mutual funds with a different style of investing. This is one fund, which has a woman for a fund manager in Swati Kulkarni, who has done a wonderful job in managing the fund till now. As per the mandate, the UTI dividend yield fund should make an investment of at least 65 percent of the portfolio in equity shares that have a high dividend yield at the time of investment. The fund has managed to successfully deliver on its commitment and has never deviated from its words. That’s called ethics and focus. Due to this, the fund has given a strong performance and because of its nature of strategy, the downfall is always restricted well. Ladies would like to invest in this fund given they like to play safe and it also comes from a lady fund manager 🙂 (Women & Personal Finance in India)

Which one should you invest in?

Remember that you have to take a call based on what your time frame is and which fund suits your requirement, Overall, if you are too confused in choosing the fund, I would say the best thing would be to choose any, randomly and invest rather than delaying your decision because of confusion. Another thing which you should understand that this is not an exhaustive list. There are enough funds other than these which could have been here in the list, but I have not included them as these 7 funds were the one which came on the top as per my criteria and also because I wanted to limit the number of funds to a single digit so that one can choose with less confusion. Also, make sure your asset allocation is correct

Disclaimer:  Note that these funds are pure equity funds and just because they have performed excellently in history does not make them future star performers. This is just an assumption, that they will keep doing great even in the future given their investment style and integrity in management till date. Also, you have to make sure you review your investments every year so that you throw out the laggards and pick better funds. Expect around 12-13% in the future even though they have high potential. This article should in no way be treated as an encouragement to invest in these funds. Your decision is purely yours 🙂

Comments: Which other funds did you expect in this list? Do you have other funds’ names which deserved to be here according to you? Do these funds suit your requirements?

What are Different ways of Buying Mutual Funds

Posted on by Jagoinvestor

There was a time, when mutual fund investing was limited to calling an agent and investing through him. He filled a form for you, and only bothered you for signatures; This was called as “convenient service.”.  Things have changed now though. With entry loads abolished by SEBI and with so many technological advances, we have different ways of investing in mutual funds .This article explains the different ways of investing in mutual funds: through agents, AMC’s, demat, and web portals. Lets take a look-see…

Different ways of Investing in Mutual Funds

Through an Agent

This is the oldest and one of the most convenient ways of investing in mutual funds. You just call an agent and tell him you want to buy mutual funds. He comes right to your door, & fills in the various forms. All you need to do, is sign the forms. Since the abolition of entry loads, you now have to compensate the agent for his services, and pay him commission on the amount invested. Agents can charge anywhere from 1-2% of the amount to be invested. Make sure you don’t pay him more than 1%, which is a good enough amount of brokerage, for expediting the process (filling in forms, carrying them to the Mutual Fund offices, having them processed et al.) If he gives you sound advice on what mutual funds would suit you, and would help you achieve your financial goals, you could then, compensate him more. That makes sense. Be cautious though! Check the details of the form and what is filled. Ideally, you should fill the form.

You should go with this way of investing only if you want convenience and comfort takes more precedence. Click on this AMFI Agent Search Link to search for mutual funds agents in your city. You can submit the search with different parameters and get a list of all the agents with their name, address & phone numbers. There are many agents who are linked with many companies (like NJInvest or Prudent Advisory) who provide login facility, where you can login and see your mutual funds Performance anytime . Read : How many Mutual Funds you should have ?

Direct Investing through an AMC

You can now invest directly through an AMC (simply put – the Mutual Fund companies themselves.) There are many mutual funds who provide online facilities for investing. To do so though, you need to have a folio number, which you get only after investing in a particular mutual fund, which means that you have to go physically to the AMC office to invest for the first time. Next time onwards, you can invest in that mutual fund, online through their website. Using this method, makes sure that your entire amount, e.g. Rs 100/-  gets invested and there are no charges here. The only hiccup, is the manual work involved at the start of the process; you have to take the pain of personally going to the office and then filling in the form. Sometimes, it’s a bit of a headache. If you want to invest in funds from four different AMC’s, then you have to go to all of them.

It would make sense to use this method, if the amount of investment is going to be large-ish and your tenure is  long-term. In that case, using this way, will save you lot of money in commissions. Just imagine that if you invest 10,000 per month in mutual funds, then with a 1% commission structure, you save Rs 100 per month, which is Rs 3,600 for a 3 yr period. So 3,600 is what you lose when you go with an agent who charges a 1% commission . Note, that you do not require demat account for this .

Read : List of Best Equity Diversified Mutual Funds

Investing through a Demat Account

This is one of the most convenient methods of investing in mutual funds. If you have a demat account, you can browse through all the mutual funds on the site, and just with a few clicks of a mouse, you can invest in a fund of your choice. But then again, you have to pay commission here, since banks are also agents. Some charge a flat fee and some charge on percentage basis. For eg., ICICI Bank charges Rs 30 or 1.5% per SIP, whichever is lower and HDFC charges Rs 100 per quarter irrespective of the amount invested. The biggest advantage of buying and selling through a demat account, is that you control everything from one place. Some of the players in online mutual funds selling are :

  • 5 paisa
  • Geojit Securities
  • HDFC Securities
  • ICICI Direct
  • India Bulls
  • InvestSmart Online
  • Investmentz.com
  • Kotak Street
  • Motilal Oswal
  • Sharekhan

 

Investing through CAMS or Karvy

CAMS is the transaction processing company which services almost all the mutual funds in India. They process all the buying and sending the report etc to end customer . You can also invest directly through CAMS . All you have to do is Download the mutual fund form from the AMC website. Take a print out and fill the form . Then submit to your nearest CAMS or Karvy Investor centre along with copy of PAN card, SIP form(if needed) and cheque . For now , there is no way of investing online with them .

Here is the list of CAMS offices in different cities and Below is list of different AMC forms which you can download .

ABN AMRO Mutual Fund
AIG Global Investment Group Mutual Fund
Baroda Pioneer Mutual Fund
Benchmark Mutual Fund
Bharti AXA Mutual Fund
Birla Sun Life Mutual Fund
Canara Robeco Mutual Fund
DBS Chola Mutual Fund
DWS Mutual Fund
DSP Merrill Lynch Mutual Fund
Edelweiss Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Mutual Fund
HDFC Mutual Fund
HSBC Mutual Fund
ICICI Prudential Mutual Fund
IDFC Mutual Fund
ING Mutual Fund
JM Financial Mutual Fund
JPMorgan Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Lotus India Mutual Fund
Mirae Asset Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Quantum Mutual Fund
Reliance Mutual Fund
SBI Mutual Fund
Sundaram BNP Paribas Mutual Fund
Tata Mutual Fund
Taurus Mutual Fund
UTI Mutual Fund

Break Down of How investors invest in Mutual funds [POLL RESULTS]

Here is a poll results

How to users buy Mutual funds in India

Note : This Poll is from the users of this blog only , so this result should not be generalised for whole country , Its just for the net savvy community.

Conclusion

Before choosing the way you want to invest in mutual funds , you should consider cost and convenience . If you are investing for long-term , you should definitely go through a way where there are less commissions or no commissions.  Only exception can be through an advisor who gives you very sound advice and you are confident that paying him a commission would help you get a better knowledge and returns .

Comments please , how do you invest ? What are your experiences and learnings ? Is there any other way ? Any tips from your side ?

There was a time, when mutual fund investing was limited to calling an agent and investing through him. Things have changed now. With entry loads abolished by IRDA (please provide link or full-form) and with so many technological advances, we have different ways of investing in mutual funds.

What is Systematic Transfer Plan (STP)

Posted on by Jagoinvestor

Imagine a scenario when you want to invest a big lump sum amount in stock market ? As markets are volatile and can go up or down very soon , there is always risk of loosing a big chunk of your investment (Learn about Stock Markets) . Take a case where you want to invest 10 lacs in Equity Mutual funds and suddenly market crashes for next 2 months, In this case a big chunk of your investment will be lost, on the other hand if market moves up pretty fast, you can make a good profit. Here you have to decide your main focus. If it’s minimizing risk and getting good decent returns in long-term, You should use something called Systematic Transfer Plan (STP) .

What is STP (Systematic Transfer Plan)

You should first understand SIP . SIP is way of investing in Mutual funds monthly, where a fixed amount of money goes from your Bank Account to Mutual funds, so if you do a SIP of 1,000 for 1 yr, it means that every month on a fixed date (chosen by you) 1,000 will be invested in a Fixed Mutual fund you choose. Lets understand STP now, In STP we invest a lump sum amount in some Mutual Fund and then a fixed sum is transferred  from that mutual fund to another mutual fund .

How does Systematic Transfer Plan works (STP)

For Example : If you have Rs 6 lacs lump sum to invest and you want to invest in HDFC Top 200 , The steps you will have to follow are :

  1. Choose a good Debt fund or Floating Rate Mutual Fund from HDFC , which allows STP to HDFC Top 200 .
  2. Invest all the money in the Debt Fund .
  3. Now you can start a 10k/20k/30k  per month STP from HDFC Debt fund to HDFC Top 200 .

Why and When to use STP

When will it work : STP will make sense from DEBT -> EQUITY when markets are mayvery volatile and you dont want to take risk with your money in a short span of time, If you invest through STP in markets and markets fall or have lots of volatile moves, then this situation will be better than the one time investment option. This is still better than putting money in Bank and doing a SIP, because at least you money is earning some returns on debt part in STP .

When will it not work : Incase markets are already at the end of a Bear market and markets can starts it upmove anytime, in that case STP will not deliver the best returns like SIP, one time investment is a good choice in that case. But then you never know that when will markets start go up. Given that a retail investor does not have all the tools and time to research the markets, it’s not advisable to invest lump sum in any case. It’s better to get 4-5%  less returns than to see a huge downside of your money in short time, Smart investors think about returns, Smartest one’s take care of risk first .

Understand How to time markets using Nifty PE analysis

Difference between SIP, STP and SWP

  • SIP : The way SIP works that your money is in your Bank Account and every month a fixed sum is taken away from your Bank and invested in a Mutual fund .
  • STP : The way STP works is, all your money is actually invested in a Mutual funds itself (probably Debt) and units are sold every month and its invested in another Mutual fund (probably Equity) or vice versa .
  • SWP : However If you redeem your units in mutual funds every month and get it deposited in your Bank accounts , it’s called SWP (systematic Withdrawal Plan) , which is recommended to liquidate your mutual funds corpus after you see a good bull market to protect your investment .

Difference between SIP and STP

4 advantages of STP

STP has 4 advantages and works in 4 ways for you . They are :

Works as SIP : You can invest in a Debt funds and from there you can start a STP to an Equity Fund , so it works like a systematic Investment Plan (SIP) .

Works as SWP : So STP can also work like SWP, because with some funds you can do transfer from Equity funds to Debt Funds, so when markets look risky to you, you can start a STP from Equity -> Debt funds, which will act like SWP .

Liquidity : Generally one does STP from Debt -> Equity funds, so your money is invested in Debt fund. This means you can sell it anytime if you want. Hence it works like a Emergency Fund also. Incase you need money urgently, it can act like a liquid asset (at least for the time being in the start when you have more money in Debt fund)

Growth in Money : Not to forget that your money is invested in Debt funds, so your money is also growing at debt returns , at least the part which is lying in the debt funds .

Some Helpful Tips

  • Invest in ELSS , If you want to invest in ELSS schemes and have lump sum money , better put it in a debt funds and do a STP .
  • Rebalance your portfolio, Use STP as a tool to rebalance your asset allocation, when your equity part goes up , start STP from Equity-Debt for 6 months or 1 yr, and bump up your debt part and if your Debt part goes up, do Debt -> Equity STP . Power of Asset Allocation and Portfolio Rebalancing
  • Take advantage of market condition , If markets have gone too high now and every other person on the road is talking about Stock and stock markets are more famous than “Saas Bahu” Serials, immediately start your STP from Equity to Debt (literally Rush) . On the other hand when markets are deep down and “Why don’t you buy stocks” is feels abusive and everyone face looks like some body has died at home when you mentions stock markets, know that it’s a time to start a STP from your Debt – > Equity (Literally rush again) . You don’t need to see any indicators to predict the markets, the two real life scenarios I have described here are enough, try to remember markets around 2007 End(bull market) and Jan 2009 (markets lowest point) . STP can be used as switching mechanism in ULIP , though it’s very restrictive and with less choices .
  • Using STP when an important goal is near, If you are saving for some important goal like Child Education , Buying Home or Retirement and your goal is approaching near by , don’t wait till target date , you don’t want to see your Money dip by 40-50% within 6 months or so if markets suddenly crash , start moving your money out of equity and transfer it to Debt now through STP .

Two types of STP

There are two types of STP plans , Fixed and Capital Appreciation. In Fixed Plan means a fixed sum will be transfered to the target mutual funds , on the other hand in Capital Appreciation , only the amount of capital which is appreciated gets transferred , that was the original lumpsum amount invested in the start is protected . Capital Appreciation choice is only with Growth Plan and not dividend plan . Here is the list of all the STP Plans as of now .

 

STP Information

View more presentations from The Financial Literates.

 

Important Points

  • Typically, a minimum of six such transfers are to be agreed on by investors in STP , just like SIP
  • Generally most of the mutual funds allow Debt -> Equity STP and not reverse , Only handful of Mutual Funds like Kotak allows it .
  • STP is a facility for convenience , when the transfer happens from one mutual funds to another its still considered as selling of mutual funds and then buying another one , so tax rules applies in the same way .
  • Most of the funds allow only Monthly and Quarterly STP , some allow weekly and fortnightly also .
  • There can be some minimum amount requirement for starting an STP like say at least 1,00,000 needs to be invested in Debt funds to start a STP to Equity . Some restriction like this will be there .
  • There can be additional Switching Charges for availing STP facility
  • Entry load and Entry load may still apply while buying and selling of mutual funds through STP.
  • Securities Transaction Tax @ 0.25% will be deducted on equity oriented funds at the time of redemption or switch to another scheme in STP .

Floating Rate Mutual Funds – How, When and Why?

Posted on by Jagoinvestor

Let us say you have 1 Lac rupees and you want to invest for the term of 1 to 1.5 years that can earn a decent interest rate. You thought of investing in fixed deposit in a bank for 1.5 year @ 6% per annum. Just after one month, bank increased it’s FD interest rate by 0.5% and again after 6 months interest rate is increased by 1%. But you cannot avail this benefit since your FD carries fixed interest till 1.5 years. Is there any investment instrument that could work to handle this situation? Of course YES, Mutual fund industry does offer floating rate debt mutual funds to invest in.

Basic Definitions you should know

  • Coupon rate: The stated interest rate on a bond or other debt security when it’s issued.
  • Benchmark rate: A rate used as a yardstick for measuring or setting other interest rates.
  • Expense ratio: A measure of what it costs an investment company to operate a mutual fund.

What are Floating Rate Mutual funds?

These are the Debt mutual funds which invests about 75% to 100% in securities which pay a floating rate interest (bank loans, bonds and other debt securities) while the rest is in fixed income securities. See List of best Debt Oriented Mutual funds

There are two kinds of floating rate funds– long term and short term. The portfolio of the short-term fund plan is normally skewed towards short-term maturities with higher liquidity and the portfolio of the long-term plan is skewed towards longer-term maturities. However, even the longer-term funds are positioned more on the lines of short-term funds and are not very aggressive in nature.

Floating Rate securities vs Traditional bonds

As you may know, that most bonds have fixed interest rates which are set when they are first issued, either by a government or a corporation. That rate of interest doesn’t change for the life of the bond. A floating rate security on the other hand, has a variable interest rate. That means it’s interest rate will go up and down, or “float” to reflect changes in current market rates.
Depending on the particular floating rate security, the interest rate may change daily, monthly, quarterly, annually, or at another specified interval. The rate is generally changed to keep it in line with a particular interest rate benchmark, which is often called the “Reference Rate.” Among the benchmarks used to set the interest rate on floating rate securities are the MIBOR (Mumbai Interbank Offered Rate). Hence, each time the benchmark rate fluctuates; the coupon rate is adjusted accordingly.

Note

The MIBOR rate is the weighted average of call money business transactions done by 29 institutions, including banks, primary dealers and financial institutions. This rate is calculated and disclosed by FIMMDA-NSE.  [ Ignore If you dont understand ]

Credit Quality and Risk/Return spectrum

Credit quality is the measurement of a bond issuer’s ability to repay the debt it undertakes. Investment into AAA and equivalent rated instruments, call money market and government securities are the safest and most liquid instruments, while below AAA and equivalent rated instruments reflect downgraded quality and lower liquidity. However, their lower quality results in better returns, albeit at a higher risk.

All about floating rate mutual funds in india

Example analysis

Let us compare the floating rate, fixed rate debt fund and liquid funds over the years to understand the performance.

 

HDFC Floating rate Income fund long term plan (G) HDFC Floating rate Income fund Short term (G) HDFC High interest (G) HDFC Liquid fund (G)
Category Debt: Floating Rate Long-term Debt: Floating rate short term Debt: Medium-term Debt: Ultra Short-term
1 month 0.35 0.35 -0.65 0.3
3 month 1.20 1.06 -0.4 0.95
1 year 7.68 5.0 5.53 4.68
3 year 8.58 — 8.2 7.17
5 year 7.48 — 5.98 6.77
Expense ratio 0.25 0.75 2.25 0.5
Exit load 3% within 18 months Nil 0.5% within 6 months Nil

 

 

Why, When & How

Why to opt for floating rate funds

  • The primary advantage of these funds is that, they are less volatile than other types of debt funds. In case of fixed rate bonds, when interest rates in the economy change, the price of the bond adjusts to make up for the fixed coupon of the bond.
  • Looking at the performance table over different time frames, floating rate funds have delivered outstanding performance over the years and more importantly, with considerable consistency.
  • A look at the performance table also reveals a better consistency in delivering higher returns when compared to other type of funds.
  • Credit quality of floating rate funds’ category is more or less similar to liquid funds and ultra short-term funds. Average maturity does not play a very important role in case of floating rate funds as they invest in instruments, that have a variable coupon rate.

When to opt for floating rate funds

  • Floating rate funds make better choice when interest rates are set to rise.
  • Floating rate fund can be considered to establish emergency fund. In the above case of HDFC Floating rate Income Long term plan (G), one can slowly build up emergency fund and once 18 months are over, you can redeem any time.
  • If investment period is 1 to 2 years and liquidity is a concern, then one can look at floating rate funds over fixed rate debt funds. Now banks are coming up with recurring deposits with quarterly revision of floating rates. Always look for alternatives as per your investment period, returns, risk and liquidity.

How to select floating rate funds

  • Long term floating rate funds are better than short term considering performance, less expense ratio.
  • Select a fund which has proved its performance over a period. (This shows the effectiveness of the fund house in mobilizing the assets under management).
  • Select the fund which invests significant % of asset in companies/securities with highest credit rating.
  • Select the fund with low expense ratio.

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Floating rate funds in India

The primary reason for their lack luster presence in the mutual fund industry has been investor ignorance of the nature of floating rate funds. There is a shortage of sufficient long-term floating rate instruments. Due to this, fund managers divert certain portion towards fixed interest securities. In the present situation of Indian economy money market and higher inflation situation, interest rates are set to rise in near future. Always consider floating rate funds over liquid/ultra short term/debt funds.

List of Top Floating Rate Mutual Fund

Long Term

Short Term


Comments! Do you think you can add these to your Portfolio for some short term goals?

This is a guest post from Srinivas Girigowda who is one of the best contributors on this blog :), Kudos to him. Check out his finance blog Here

How many Mutual Funds you should have ?

Posted on by Jagoinvestor

Investment in how many mutual funds is enough? Though it depends on individual needs and situation, we can always arrive at a number or a range which should be optimal for a large chunk of mutual funds  investors. Many a times Investors invest in a large number of mutual funds which does not add any additional value to their portfolio most. They have to understand that investing in every new mutual fund coming into the market will not help them in any ways because after a point they have their investment in most of the companies in stock market. In this article lets see how many mutual funds a common man should invest in general.

Reason we buy mutual funds

Before moving forward, let’s understand why do we buy Mutual funds at the first place? We sometimes neglect the basic reason to invest in mutual funds, the reason is very simple:

We invest in Mutual Fund because we have money to invest but we dont have the expertise to invest in Stock Market. We do not want to spend time to manage the investments directly in different stocks and we want to make sure that we diversify our investment across a number of different companies.

Statistics on Number of Mutual funds in a portfolio

I conducted a Poll on this topic and we have some interesting results .

Facts

  • 63% people invested in less than 6 Mutual funds
  • 84% people invested in less than 10 mutual funds
  • 50% people invested in 1-6 mutual funds
  • The maximum number of investors were in the optimal range of 4-6 .
  • Total Vote : 225
  • Average number of Mutual funds : 5.57

If you look closely the graph results mimic binomial distribtution (Ignore this if you don’t understand), which shows that law of numbers apply even to this phenomenon and somewhere the average number of mutual fund converges to the most logical number by default .

Why it does not add much value when you invest in more mutual funds?

Each mutual fund on an average invest in at least 50-60 companies. If you buy 3-4 mutual funds then you are anyways going to invest in close to 100 companies overall (considering there will be some overlaps). So If you buy any equity diversified mutual funds, your money is going to be invested in some of the best companies probably 50-100 of them. Now when you buy another Equity diversified mutual fund there are high chances that the money is going to be invested in almost same set of companies in some proportion, so you are going to invest in same set of companies again. Buying 2nd mutual fund of same category will obviously increase your reach to some companies which were not part of the 1st mutual fund. But now as and when you add 3rd, 4th or 5th mutual fund, you will actually be invested indirectly to same set of companies. The price movement of these companies share prices will be same for all the mutual funds (most probably).

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So what you have to understand is that after a certain point, adding more mutual funds of the same category is of no much value for the portfolio. Adding more number of mutual funds leads to another problem which is tracking problem if you are a kind of investor who buys a mutual funds and just looks at the NAV to find out if you are in profit or loss then you are not doing right thing. Mutual funds investing is very much close to Share investing where you track the instrument, see how it’s performing, what’s going inside the fund, how is fund manager doing, how are they churning the portfolio etc etc. So if you have too many mutual funds in your portfolio, it will be too tough to track them and your portfolio will be very cluttered.

You have to understand that investment of 1 lac in 20 mutual fund will roughly behave in the same way as investment in 5 mutual funds because finally the investment has happened in shares of top companies (roughly the same number of shares), so the investment value is result of the underlying share prices movement and not the number of mutual funds in the portfolio.

Thumb rules:

You can ask two basic questions to yourself to find out if your portfolio size is too big for yourself:

  1. Can you name all the mutual funds in your portfolio and a 2-3 line explanation about what the fund does?
  2. Can you guess roughly how does the movement in stock market affect your corpus in general? If stock market is going to drop or increase by X%, so you have a rough idea of what will happen to your portfolio at a high level?

Example of a Portfolio of Mutual funds

Let’s create a sample portfolio of mutual funds. We will consider ETF’s as a mutual funds for this example:

  • 2-3 Equity diversified Mutual Fund (Tax + Non-Tax saving): See the List
  • 1-2 Debt Fund: See the List
  • 1-2 ETF’s or Index Funds

Note that 2-3 Equity Diversified Mutual funds will cover almost all the big companies in your portfolio. Some ETF or index fund will give index level exposure and make sure you invest in top companies. Debt funds will add exposure to Debt part and no-correlation with Equity.

Most of the people do not invest in the same old fund they have bought, they feel that buying every other mutual funds in market will some way help them earn extra returns which is far from truth. Consistency in investment and faith in one of the good funds you have chosen is the right way to invest in mutual fund.

How having more than one Mutual fund in portfolio reduces the risk?

You have to understand the concept of standard deviation, it’s nothing but risk and return potential from mutual funds point of view. So a single mutual fund has the highest standard deviation and the risk and return can be very high. Adding more funds will help in reducing the standard deviation of the portfolio. As per Morning Star Research (Many thanks to Hemant Beniwal for sharing this)

After 4 funds, the effect of adding another fund diminished. It’s still noticeable, but not so dramatic. After 7 funds, things have mostly leveled out and after 10 funds, a portfolio’s standard deviation stays nearly the same regardless of how many funds you add. Thus, once you own between 7 and 10 funds, there may be no need for more. In fact, the more funds you own, the more likely you are to own at least a couple that do practically the same thing. That could be a drag on your returns because if you have multiple funds doing the same thing, one is likely to be better than the others. Focus on the superior fund and you’ll get better returns .

How do you Buy Mutual Funds? [POLL]

Comments, Please comment on what do you think is the optimal number of mutual funds?

How to look beyond short term returns in Mutual Funds

Posted on by Jagoinvestor

Want to buy a mutual funds which has given 105% return in 2009? Go ahead… How do most of the people choose a mutual fund? Let us try it once! Go to Valueresearchonline.com and find Top 10 funds across all the equity funds with 1 yrs performance. Below is the example of the page I got. So all these funds have given more than 100% return over the last 1 yr. Now it’s pretty simple to choose them, right? Just pick any of them and you have done your “Investment Planning”!!…… Far from the truth! Most of the mutual funds starts advertising their mutual funds “great” performance just after a strong market. They will claim that their fund has 1st rank in some blah blah category and they have the unique way of investing and what not. Let us see in this article, how we should look at short-term performing mutual funds and evaluate them on different parameters.

How Mutual Funds are marketed

Let’s take a case of “JM Emerging Leaders” Mutual Fund. Try to look at the points which a Mutual funds company can use to attract customers and What is the reason for each of them.

Its one of the 10 funds on the return parameter out of thousands of Mutual funds in this planet. Its 1 yr return is 144%.

 

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True! But what are the reason for this? The fund is extremely risky, risky to the extent you can’t imagine! The fund portfolio looks like this:

Mid Cap: 56.18%

Small Cap: 43.82%

(as of Feb 7, 2010)

Now what else do you expect from a fund which has all 100% of its money in Either Mid cap or Small Cap companies which moves like crazy after a big bear market? If the fund is so great in 1 yr parameter, what is the reason its overall return since it came in existence is -5% (negative return in last 5 yrs)? The answer is simple, the fund is exposes to too much Risk. In order to get extremely high returns, it’s exposing itself largely to risk that the returns over long-term will be unstable and probably low.

The fund beats it’s benchmark and category average returns by huge margin

This happens for the same reasons we talked above. Benchmark is an Index and it’s returns are not based on some one’s judgement or decisions, but mutual fund returns are!! Fund manager decides how aggressively they want to invest, so if today the fund has beaten it’s benchmark or Category in positive side, tomorrow when there will be disaster, it will beat it’s benchmark by huge margin on the negative side and the performance will be much lower than the benchmark, it’s called Beta

Mutual funds high returns myth

NAV more than doubled in 1 year

Again an idiotic comment, it’s all about return, the fund has made 105% return in 2009, but what is NAV value? Ans: 7. something % . It’s 5 yrs in existence now, started from NAV of 10 and still its at 7.something. At one time in 2009 the NAV went down to Rs 2.9, this 144% year in last 1 yr has helped it come back to 7.something levels now and still the returns are the marketing factors. I am wondering how it manages to get so much of investment (Fund has 262 crores of Net Asset Value as of 31/01/2010). Who is putting all the money in this?

What are the Two important factors you can look at and make a quick opinion

Lets talk about two main things

  • Mean
  • Standard Deviation or Volatility

Mean: Mean is nothing but the average of returns over a particular time. It tells us how much can we expect over a period from the mutual fund. It’s important to look at Mean (average) of Mutual funds return so that we have an average expectation. For some period we can get 20% return, for some period we can get 10% and for some we can get -15% also. But we have to concentrate on the average. Look at average return from Equity in Long run from Indian Markets

Standard Deviation : Now this is some thing we never see, what is this? Looks like a scary term from our school maths, but dont worry, it’s very easy thing to understand. Its nothing, but how much deviation you can expect from the average. To clear the point, understand that (10,12) and (1,21), both have average of 11 but standard deviation of (1,21) is high because both the values are at much distance from their average of 11. In that same way if we have two mutual funds say Mutual fund A, which has given returns of 20% and 30% in 2 yrs and we have mutual fund B, which has given return of -10% and 60% in 2 yrs,  both of them have average of 25% (simple average), but the second mutual funds B has higher standard deviation compared to A. What it means is that its more risky, the return range of B is higher. This is directly related to risk/reward. It’s very risky and very rewarding compared to mutual fund A. So it does not suit general investors who need high and consistent returns.

Look at List of Best Equity mutual funds and Debt mutual Funds

What to look at in mutual funds

So over a long term, we have to choose funds which are higher in Return and Lesser in Risk . That mean is there are two Funds X and Y, we have to look which has higher Mean and lower Standard deviation in returns. This is not true for investors who have extremely high risk appetite and want to take extra risk, in that case this will not be very much recommended.

Make sure you dont calculate these things on just 2-3 data points, make sure you have enough (at least 10-12 numbers) so that its more accurate. In the Table Below I have taken two funds which I consider BAD  and 2 Funds which are GOOD and their quarterly returns from Q1 2006 – Q4 2009 (16 quarters) and finally calculated the Standard Deviation and Mean.

 

Fund Names BAD FUNDS Average of BAD FUNDS Average of GOOD FUNDS GOOD FUNDS
JM Emerging Leaders-G Magnum IT HDFC Top 200-G DSPBR Top 100 Eqt Reg-G
Quarters Return in % for 1 quarter

 

Return in % for 1 quarterQ1 200616.196.9911.5921.6720.3522.98Q2 2006-13.69-7.53-10.61-10.09-10.83-9.34Q3 2006-0.6618.438.8916.9317.516.35Q4 20061.1529.0215.0911.01913.01Q1 2007-8.981.63-3.68-4.27-4.93-3.61Q2 200722.266.4114.3416.5915.1518.03Q3 200723.4-10.046.6815.8716.7514.99Q4 200741.659.325.4823.4620.8626.06Q1 2008-40.36-26.34-33.35-23.78-22.53-25.03Q2 2008-13.84-2.24-8.04-11.04-12.25-9.83Q3 2008-25.45-20.02-22.740.892.89-1.12Q4 2008-48.73-37.83-43.28-20.2-21.86-18.53Q1 2009-16.26-10.24-13.250.52-0.271.31Q2 200981.5858.2769.9347.4155.3339.49Q3 200924.837.6131.2119.3819.4819.27Q4 20098.3915.7712.085.085.065.09Standard Deviation

32.2424.3827.0718.3919.5717.47Mean3.224.323.776.846.866.82

 

Interpretation of the numbers

So you can see the Standard deviation and mean of returns for 2 Bad Funds and 2 Good funds and their mean return and mean standard deviation in a single quarter. So you can see that Bad funds have given return of around 3.77% per quarter on average (simple average , not compounded one) and the standard deviation is 27.07%, which means that it can deviate up to 27.07% on the upside or downside with 68% chances. (forget the maths, you have to go into probability and normal distribution and all those things, interested people can look for this link to get more insight on this. Similarly the good funds would return on an average 6.84% every quarter with deviation of 18.39% on upside or downside with 68% probability.

Conclusion

So, the conclusion of this whole mind boggling exercise is that we should understand that short-term performance of mutual funds is not where we should aim! We should properly evaluate the fund performance with different parameters. We should also concentrate on volatility and risk exposed by the mutual fund.

POLL (please vote, It will help me write a new post)

Comments please. Please share your views on how do you feel about Mutual funds with short-term performance ?

List of Best Debt Oriented Mutual Funds for 2009-2010

Posted on by Jagoinvestor

If you don’t like Equity because you have a lesser risk appetite and  still you want to make better returns , where do you invest ?

The answer is Debt Oriented Mutual funds , In this article we will see What are Debt Oriented Mutual funds , A list of Good mutual funds and what are the returns you should expect from them .

mutual funds

Have a look at List of Best Equity Diversified Mutual Funds. These funds are getting very popular these days as people are not ready to put their money in market for long term because of Market Uncertainty and decreased risk appetite after the recent fall in 2008-2009 .

Hence these Debt Oriented Mutual Funds have become very popular , Read This Article

What are Debt Oriented Mutual Funds ?

Debt Oriented Mutual Funds are those Mutual funds which Invest primarily in Debt products like Debentures , Certificates of deposits from Corporates , Govt Bonds etc , They put a small portion in Equity also (10-40% max) . These funds generally return in range of 10-20% in long term and the downside is limited in these Mutual funds as Debt Component is High.

Please note that even these Funds can give Negative Returns but that happens in Extreme fall downs or very bad times. You should not assume these will always give positive returns. Also You should also concentrate on Long term returns, Dont judge a Mutual fund by Its Short term Returns

Let us see some Stats which will give you more idea about these .

  • In 7 yr time frame Best return is 20%and worst return is 8.09% .
  • In 3 yr time frame Best return is 12.09% and Worst return is -5.87%  .
  • 5 funds are more than 10 yrs old .
  • Most of the Funds do not have an Entry load, but can have exit loads if exited before 2-3 yrs . Some have locking period also , but no tax benefit .

Below is the Chart I created which Shows CAGR return of Top 10 Debt Oriented Mutual Funds (Click to Enlarge)

List of Best Debt Oriented Mutual Funds
List of Best Debt Oriented Mutual Funds

Source : ValueResearchOnline.com

List of Best Debt Oriented Mutual Funds

UTI Mahila Unit Scheme

  • 16%+ return Since Launch, 8 yrs old Fund , Excellent Track Record .
  • This is my Favorite Mutual Fund . Amazing one .. Read a complete review for this Mutual Fund Here

Tata Young Citizens

  • 14 yrs old Fund, Excellent Returns , This is extremely Risky Fund .. Don’t consider this as a Debt Oriented Fund
  • Equity Component is very high at 50% . So I am not sure if this will suit as Debt Oriented Fund .. only people with strong heart should take this .

UTI CRTS 81

  • One of the Best Funds , 28 yrs old fund , Lambi Race ka Ghoda , 13%+ return CAGR which is amazing for any debt oriented fund .
  • Equity Exposure of less than 30% and the worst return ever in 1 time period is -14% , the best is 35-40% in a year .

HDFC Multiple Yield Plan 2005

  • 4 yrs old fund , Extremely low Equity Exposure of less than 15% ,  Average return
  • Looks great for Future performance .

Other Good Funds

  1. Birla Sun Life Asset Allocation Conservative
  2. Templeton India Pension
  3. Unit Linked Insurance Plan ’71

Note : please make sure you read all the other details yourself before you decide on buying , These are just my personal opinion and make sure you are your own decision maker 😉 .

Last year when markets were doing bad , Debt Funds were the best choice of the Investors , However Its not the best time to Invest in pure Debt Funds , but rather invest in Debt Oriented Funds if you are not ready to take high risk.

Look at the following Video which Is not a recent one, but talks about How investors were eager to invest in Debt Funds Last year .

Conclusion

If you don’t have very high Risk Appetite , you can look for alternatives to Debt Oriented Mutual Funds , Its always better to park your funds with these if you want more than 10% return with some amount of Risk .

Please note that These are not equity Diversified funds and hence you should not expect very high returns from these .. If you get around 10-12% from these funds that is more than good . Anything more is wonderful .

Please share your comments. Do you think you will invest in these funds, Are the returns from these Mutual funds are worth looking at them? Any do you know of any other fund which is not covered here? Please leave your comments.

Review of UTI Mahila Unit Scheme Mutual Fund , Excellent Mutual Fund

Posted on by Jagoinvestor

Have you seen a Diamond or anything equivalent to that ? No ? I will show you one today . I am going to review a fund which has performed so well that It despite being a Debt oriented Mutual funds has given returns which we expect from Equity over long term . Yes !! ..

UTI mahila unit scheme mutual fund

This fund has no more than 30% allocation in Equity ever and despite that, it has given a long term return of 16.6% (at the time of writing) and has many more accolades to its credit . Lets have a deeper look .

UTI Mahila Unit Scheme-G [Link]

Most of us run around to find the best equity fund who will give us excellent returns . In long run , an average person requires 12-15% of annual returns on his investments , and this fund has given close to 16% return Since Inception . This kind of return what we should expect from equity in Long term .

This is a Fund which is open only for Women of India , Males who wish to invest in this Fund can ask their wives to Invest , Make sure you understand the Income tax Clubbing rules .

Highlights of this Fund

  • 8 yrs old Fund (Inception Apr 2001)
  • No Entry Load
  • Exit Load of .75% if sold before 1 yr (as on 21/10/09)
  • Return Since Inception : 16.6%
  • 5 yrs return : 18.28%
  • Best return in 1 yr time frame is +54%
  • Worst return in 1 yr time frame is -10% .
  • Consistently outperformed Its Benchmark ( Crisil H 75:25 ) and ‘Category Average” in all the time frames
  • Can not invest more than 30% in Equity .
  • Well Diversified Portfolio across Equity and Debt investment .

Comparison with Nifty

Below is the chart of Nifty and UTI Mahila Unit Scheme till Dec 08. You can see how its has given close returns like Nifty. Primarily this fund is a Debt Fund, 70% of this Fund is always in Debt + Cash, only maximum 30% funds are in Equity at any point of time, And still this fund is giving such an excellent Returns.


Who should Invest in This Fund ?

Mainly this fund is a very less risky fund with very high return , You can invest in this fund in Following Scenarios

  • If you have short term goals for 2-3 yrs, You can invest in this fund, You have to accept that event this fund has equity exposure and in really bad times, even this can disappoint you. Don’t expect it to return the above returns with surety, Its just expectation and you know how “expectations” are broken in Life 🙂 . Key to Happiness is Low expectations 🙂 .
  • People near their retirement life and who can take moderate amount of risk can park some part of their money in this fund (Dividend Option) .
  • People who are very conservative and adore Fixed Income Products like FD’s , Endowment Insurance , NSC etc and willing to taste “high returns” can put some money here.

Other Alternatives or Good Funds in Same Category

  1. UTI CRTS 81
  2. Unit Linked Insurance Plan ’71
  3. FT India Life Stage FoF 40s
  4. Birla Sun Life Asset Allocation Conservative

Disclaimer

I have suggested this fund to some of my Paid Clients as part of their Investment Planning , but final decision of Actually investing in this fund is their itself if they want to invest in this or not !! . I do not guarantee the returns (who does ? )

Comments

Please share your valuable comment and tell us about some other fund as an option . Also let us know if you found this Mutual funds good or not !! .

Note : Wrote this article while travelling from Varanasi to Delhi

Don’t Judge a mutual fund by its Short Term Performance

Posted on by Jagoinvestor

“Don’t judge a person by their Sunday appearance” applies to Mutual funds also. Best Mutual funds are the best over most the time frame and Worst mutual funds are the worst performers in most of the time frame.

What I mean by this is that the best performers return wise in 5 yrs, 3 yr and 1 yr are almost at the top and worst performers are always in the bottom for 5 yr, 3 yr and 1 yr time frame. Let us look at the Chart of mutual funds performance

I compiled a list of 78 top mutual funds on the basis of 5 yrs Return and plotted a graph of returns for 5 yrs, 3 yrs and 1 yrs for them accordingly. To smooth out the data, I took a 10 period moving average (i.e. I took an average of Top 10, then an average of 1-11, then 2-12…) Just want to see what is the pattern of Mutual funds list. Have a look below:

Source: Valuereserchonline.com

If you look at the chart above, you will see that the Best performers (Top 10) were in the best performers list for 3 yrs and 1 yr time frame also. And at the same time, the worst performers in 5 yrs time frame were the worst performers in 3 yrs and 1 yr time frame, whereas the opposite was not true… See this video post on how to choose a good mutual fund for yourself?

Here are the Learning’s and conclusions:

Do not judge a mutual fund by it’s short-term Performance like 1 yr

There were many mutual funds who gave top returns in 1 yr time frame (See the orange line, see all the top positions) but not all of them were the best in 5 yrs time frame. The same thing happened with 3 yrs time frame: there were 2-3 mutual funds at the top in 3 yrs time frame but they were not best in 5 yrs time frame. See why SIP works well in long-term

Short-term performance does not give enough indication of Long-term

This is common sense, just like meeting a person for few hrs or days cannot tell us about his/her nature or behaviour, the same way a mutual fund cannot give a good indication of its long-term perspective from short-term performance.

In the above chart you can see that if I gave you just one year performance chart and it was sorted by returns, you could never tell which amongst the top would also be at top in 5 yrs time frame.


Bad performance in short-term should not be taken too seriously.

This is kind of same thing which I said above, but let’s see it with a different perspective. Short-term performance should not be the only reason for selling your mutual fund or Shares. We generally take our decisions based on short term performance, that is true for Life also.

We need patience and give time to our investments to show its true colors. Good investments happen by giving time to your investments and Early Investing, not just by choosing one.

Comments please, your 4-5 kind words will help me know if you liked it 🙂