Our Micro Analytical Process for Selecting the Best Equity Mutual Fund Scheme for You
There are 1000’s of equity schemes offered by 34 Amc’s. How do you select the scheme that is right for you? Why not just invest in the Sensex or Nifty Index Funds or ETFs (Exchange Traded Funds), that gives you the largest companies in the country, have very low cost at just Rs 0.05 per Rs 100 (5bps or even lower) and easily trackable as everyday you just need to see where the Sensex or Nifty is going to know the value of your investments.
The primary reason to invest in an actively managed fund, as against the index fund, is promise of better returns than the index. How do you know which fund will give better returns going forward? Past performance is no indicator of future, changes are so fast that many funds see vast movements in both returns and assets, fund houses see M&A activity, fund managers leave and every fund house comes up with more and more schemes to gather more money.
In order to give you the best analysis for selecting funds, if you do not want index funds, which we always recommend, we have a very strong micro analytical process for fund selecting where we first look at your objectives, then marry a fund’s portfolio with your objectives. Our team of equity analysts will study each and every stock in a fund’s portfolio, then shortlist the funds that have the best portfolio and then give you the funds to invest in.
Selecting the Right Equity Mutual Fund Scheme for You
Mutual funds pool money from the investors and use that money to buy stocks or bonds or both. Investing in equity mutual funds may get confusing and one might find it difficult to decide which one to choose from within the vast array of funds on offer. It is difficult to figure out which one will do well in the future and give returns that beat industry peers.
Investors typically select mutual funds only on the basis of the recent performance which may or may not be necessarily correct taking into consideration other factors such as promoter background, fund objective, expense ratio and analysis of portfolio with regards to the market conditions.
If certain basics are studied and understood while choosing equity mutual funds the probability of getting decent returns on investments increases as a result. Some of the important aspects of selecting a good mutual fund scheme for the purpose of investment are as follows:
The investor should check the credentials of the promoters of the mutual fund company. Established and professional companies have sound policies and investment experience to ensure invested money is safe and also well positioned to benefit from market movements.
The objective of the fund:
It is important to assess the objective of investing in mutual funds. An investment objective helps in deciding the macro-level selection of the mutual fund type.
There are specific objectives for mutual funds and they are usually classified as per their objectives and the investment style. The objective for growth funds is capital appreciation over the medium to long term while funds that aim at investing only in specific sectors or industries, such as real estate or healthcare the objective is to maximize the return by exploiting the growth of booming sectors. Value funds generally aim at investing in stocks that are deemed to be undervalued in price because of various reasons. It is expected that, once the market corrects these inefficiencies, the stock price will rise thus benefitting the investor. If the objective of the fund is in line with what investors are expecting from the market the selection process becomes a tad easier.
Portfolio Analysis: The analysis of the portfolio is of paramount importance when one wants to invest in mutual funds. The selection of stocks specific to an industry along with diversification among different industries should be well understood for the specific scheme of the mutual fund. Further, details such as sector weightage and individual stock weights should be also studied to know whether the objective of the fund is in line with the actions and implementations of the fund manager.
The fund manager’s track record and his ability to navigate market cycles successfully over long time periods is a great factor that one should study.
The fee that an Asset Management Company charges the investor for managing a fund is the expense ratio expressed in terms of percentage of the assets under management. It may also include a commission paid to the broker or distributor. As far as possible investors should select a fund with a lower expense ratio for the purpose of investment.
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