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I work as a software professional and have decided to invest a part of my savings in mutual funds.
Since I have just started earning (three years ago), I thought it best to opt for equity funds. And, over the years, move to other less riskier funds.
Here is my question.
Let's say one mutual fund company offers two equity funds: A and B. Fund A is three years old and has given a great return. Fund B has just been launched.
On the face of it, Fund A seems to be a good choice. On the other hand, Fund B has a better chance at phenomenal returns.
Since both are from the same fund house, is there a fair chance that Fund B will perform as well?
- Sandeep Deb
Let's start with an assumption you have made.
Your premise that Fund B has a greater chance of gaining than Fund A is inappropriate. There is no reason why a fund that has delivered good returns in the past, and whose Net Asset Value has already appreciated substantially, will not gain more in the future.
Therefore, going in for Fund B simply on the presumption it will gain more is not appropriate.
We agree that when a fund house delivers good returns on its funds, it adds to the credibility. Ditto with a fund manager. But there are more things to be looked into.
Firstly, look at the investment objective of the new fund. Ask yourself if you, as an investor, want to invest in such a fund.
Secondly, a fund manager who has been managing, say, a large-cap oriented fund very well may not be able to do so with a fund based on some other theme, like a pure mid-cap fund. Only time will tell.
Lastly, one may not be sure beforehand as to how aggressively a fund is going to be managed. For example, only after it has a performance history can one say whether it takes concentrated bets in stocks and sectors (which means it has invested substantially higher amounts in few sectors or stocks) or whether it always keeps the portfolio well diversified.
In contrast, you have a lot of information about the older funds in these respects and therefore are in a position to make an informed decision.
Lately I have started investing in new fund offerings.
Here are the funds I have invested in.
HDFC Premier Multicap
Reliance ELSS
SBI Multicap
BIRLA Top 100
PruICICI Infrastructure
The value ranges from Rs 10,000 to Rs 15,000 in each of these funds.
What do you think about these funds?
I would like to start a Systematic Investment Plan. What funds do you suggest?
Do you think it is wise to trade in the equity market?
- Samit Sachdeva
All your investments are in new funds and, therefore, one cannot say much about them. Ideally, you should go for older funds that have performed well across different market cycles. In that case, you would be investing in funds with good long-term performance records.
You have taken the right decision to invest through the SIP mode. For your investments, check out the list of the top rated funds at Value Research. These are the ones which have delivered superior risk-adjusted returns over the years and hence are investment worthy.
Equity investments are meant for the long-term. Trading in stocks -- buying and selling stocks in very short durations -- may provide quick returns when the stock markets boom, but they can also inflict heavy losses when the markets turn sour. Therefore, it is never a recommended strategy for investors.
Even investing directly in stocks for the long-term will be advisable only if you have the required time and the skills to pick the right stocks at the right time.
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