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Dont know which mutual fund to invest in?

  1. #1
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    Jan 2006

    Default Dont know which mutual fund to invest in?

    Most people pick mutual funds by looking at their past performance and take it for granted that it would keep performing just like it had in the past but unfortunately that is not the case and mutual fund performances depend on the fund managers decisions which could go wrong at times and a mutual fund can underperform the market for a long time. Take for example Sundram SMILE fund. It was every experts pick until a few years ago and you dont even hear that name any more. There are a lot of other examples as well.

    Picking a good mutual fund and start investing is not all you have to do but you have to keep track of your fund's performance as well over time. I would say take a look every quarter and a good look every year to decide which fund to hang on to and which one to get out of ofcource looking at the tax implications as well.

    If you cannot do this I have a fail proof plan for those who have very little knowledge and have a regular stream of money to invest in the market but I have a little explaining to do before we go there :

    How do we evaluate mutual fund performance?
    I look at a fund and see if it has beaten the index over the years consistantly or not and if a fund underperforms the index I would most certainly get out of it unless there is a very big underlying story to what the fund manager is doing which would hopefully result into massive outperformance in future.. But the problem is I will not be right always and fund managers are not Gods either so hat is it that a common investor can do? The best thing you could do is invest in the index itself.

    Why and how to invest in the index?

    We get sleepless nights picking and choosing stocks and/or mutual funds and the reason we do that is to try and beat the index some how. Some times we succed and some times we fail. Why leave room for failure? Why not just invest in the index itself and get good sleep at night atleast There are number of ETF's available in the market and you can pick the ones with least expense ratio. IDFC and Quantum fund houses are good in that respect.
    Index funds will atleast keep you at par with the market in the long run and you can even outperform the market by pushing some extra cash at times when market corrects. Those stocks that lag too much are chucked out of the index from time to time and good companies are entered that way it remains a healthy basket and you dont have to rely upon the wisdom of a fund manager which may fail you at times. For those who want to make sure that their investment doesnt underperform the index it is the best option. Invest in the Index fund ETFs its a win win.

  2. #2
    Guardian Angel just4kix's Avatar
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    Dec 2007


    I recommend having a small diversity in the mutual funds:

    - Stick to 50% large cap including diversified equity, 25% mid-small cap, 15% debt and 10% to ETF
    - Avoid sectoral funds except FMCG. FMCG sector funds are doing very well and these are backed by giants such as HUL, P&G, ITC, etc.
    - Although past performance is no guarantee, still a complete overview of near term (1m, 3m, 6m, 1y) and long term (2y, 3y, 5y) is a good indicator. Green performace throughout is the key
    - Look for competing funds in the sector
    - Look at CRISIL rating
    - is a good site; I use it

    I recommend following funds:

    1. Axis Equity Fund (G)
    2. Quantum Long-Term Equity (G)
    3. SBI Emerging Business (G)
    4. Birla SL India GenNext (G)

    1. IDFC Dynamic Bond Fund - Regular (G)
    2. Reliance Gilt Securities - Retail Plan (G)
    3. SBI Dynamic Bond Fund (G)

    1. Kotak Nifty ETF
    2. HDFC Index - Nifty Plan
    3. Quantum Gold Fund
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