It is always good to be well prepared, especially when it comes to your finance so that you can have a smooth 2020.
It is always good to be well prepared, especially when it comes to your finance so that you can have a smooth 2020.
Simple and basic “Mantra for Investing” is simple investments in great schemes or companies at “fair or great prices” that deliver great returns and investments in poor schemes or companies and at “poor prices delivering poor returns”.
Invest more when markets are cheap
Invest less when markets are expensive
Avoid investing in euphoric environments and book partial profits
Make an Investment decision on past performance
Investment at all levels for rupee-cost-averaging irrespective of markets being overvalued or fairly valued or undervalued. In fact as per legendary investor Warren Buffet, “Dollar-cost averaging is the worst kind of investment strategy”
The following are a few criteria for selecting suitable Mutual Funds. In case you are not able to determine then take the help of a qualified advisor.
Before deciding to invest in mutual funds, you need to determine your financial goals (long or short term), the duration for which you want to stay invested and the appetite to take risks. Accordingly, select the scheme category that is best suited and can deliver the required results.
Investing solely on the basis of the past performance could be one of the biggest mistakes investors could make. Many a time we get to know of schemes that have done very well in the recent past, instead of blindly investing in such schemes, we must look at the quality of the scheme and if it is available at near fair value. A good quality scheme at expensive valuation will have underperformance and sub-optimal returns.
The economic factors directly impact the markets, both national and global, which in turn affects the portfolio, thus affecting the performance of the fund. And hence, the most desirable option is to diversify the investments keeping in mind the short-term and long-term objectives.
Cost to your investment, look at your mutual fund scheme's total expense ratio (TER) and turnover ratios and compare it with similar funds in the same category of mutual funds. The expense ratio is an essential factor to consider while choosing a scheme, as they are known to take away a substantial chunk of the returns.
Avoid decision-based upon big Names, there is a tendency among retail investors to follow big brands and big names for selection of mutual funds schemes. However, that is a subjective assessment without any scientific basis.
Do not miss out on hidden gems and relatively new funds as most of the thematic and new funds are not rated or ranked by all research and rating agencies. It is important to find out hidden gems and rising stars in these categories for the construction of the proper and balanced portfolio.
Before investing in any mutual fund schemes, proper research and guidance are the utmost necessary to optimise risk-adjusted returns. Markets are volatile and they carry risk therefore investments of mutual funds will fall from time to time based on market conditions. Examine the present NAV (net asset value or price of one unit of mutual fund) and compare it with readily available 52 weeks high and 52 weeks low NAVs to assess the current condition.
Execution of mutual funds transaction has become very easy and available on your figure tips, however, please ensure that total expense ratio (TER) should not be the main decision-making criteria investment, but investmentin Safe Adequate Holistic Infrastructure (SAHI) scheme at reasonable NAV, so that required objectives are met and not missed by being “penny wise and pound foolish”.
At present market levels, few of the funds that are high quality and at reasonable valuations as per RankMF are as under
Small-Cap
Axis Small Cap
Kotak Small Cap
Mid-cap
Motilal Mid cap 30
DSP Midcap
Kotak Emerging Equity Fund
Large cap
LIC MF Large Cap
PGIM India Large Cap
Multicap
Motilal Multicap 35
UTI Equity fund
Parag Parikh Long Term Equity Fund
Value Fund
Tata Equity PE Fund
UTI Value Opportunities Fund
Focused Fund
Axis Focused 25 Fund
DSP Focused Fund
Kotak Focused Equity Fund
The author is the Head of Rank MF, Samco Securities.