Nice and Interesting Question, Mr. Mehta
Last week, we had explained why you should not priorities a fund which has given impressive returns in last one year.Being an investor, you always want a fund that does what you expect it to do and do it repeatedly finishing among the top half among the funds in its category at least 4 years out of 5 years.
Do avoid a fund which perform erratically ( top in one year and bottom in the next) among its peers,even if the average performance is above average.
Your fund investment is just like a cricket team, which you will like to perform in top rank. erratic performance also indicate a fluke performance by the Fund manager,where higher earnings may just by luck. If the fund manager has real edge, then he would consistently pick good stocks.
for example : Axis Bluechip Direct-G
3 Yr Returns 16.78 %,
5 Yr Returns 15.06%,
7 Yr Returns 13.38%,
Returns since launch 15.70%
So here you find a fund which shows consistency in its performance , inspite of Rs. 35915 Cr managed by it.
You should Go for such funds.
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Good Question. If you are studying Mutual fund book from USA, the answer would be that you must invest in International funds, since for a US investors, the international funds means investments in India, China and some other Asian countries.
However since you are an Indian Investor, for you , the answer is International funds are not that much attractive. One generation ago, about 2/3rd of the stocks represented by US companies and now the picture is different. At present about 2/3rd of the stocks are trades outside of USA and the share of USA has declined considerably. At the same time, the share of Euroean stocks have also declined. Moreover the growth rates of their companies are also down. So for an Indian Investors, the returns we earn while investing in Indian stocks is much higher than returns from International funds.
Lets check last one year returns of most of the international funds. Out of 45 International funds, most of the funds have shown NEGATIVE returns during last one year, ( Except ABSL Commodity Agri Global Agri. fund which has earned 23.98% positive returns)
Edelweiss Great China Equity offshore fund has (-) 27.16 returns during last one year, Invesco India Global Consumer Trends funds has (-)31.35% returns.
Yes, if you consider last 5 years returns, then Motilal Oswal Nasdaq 100 ETF has best return of 23.09% pa.and ICICI US Bluechip Equity fund has earned 5 years returns of 19.30%.
So ??? On an average, the performance of Most of the international funds are not impressive ( barring few), and investments in the same may be avoided.
For Mutual funds, fixing a Target price for Sale or redemption is not correct polocy. For Equity stocks, many investors like you fix up target price for sale or buy. So when the price fixed for buying is reached, they make investment and when the stock reaches a target price, they sell the same.
However such strategy doesnot work for mutual funds. In the case of funds, the fund manager is using his own buy / sell displine. So there is no need for your fix Redemption price and sell the fund, when such price/NAV is reached.
you should sell only when the fund is not performing as expected.
Very interesting question. It is believed that in the times of Inflation, Gold and Silver provide hedge, something that does well when stocks or bonds perform poorly. Unfortunately Gold or Silver has not proved to be a very good hedge of the past several years.
Do understand, Gold and Silver has their own fan following who think it is true source of value and the time is always right to own it. Reality is a bit different. As the history shows, the price of gold is volatile and unpredictable. Gold is not a growth investment like stocks or real estate that increases gradually. There is no evidence that Gold acts as an inflation hedge. A good test of inflation is whether a commodity increases in value when bonds decreases in value. In the times of Inflation, bonds perform poorly. During the 1990s, gold did not perform well in bond-bear-markets.
Investing in Gold or Silver mutual funds present another problem. Gold fund do not offer a pure play on Gold. In USA, most of the Gold funds managed to move in and out of gold mining stocks and other precious metals, as the fund manager sees fit. Investing in Gold fund or Silver fund is no guarantee that you will be investing in Gold/Silver. Many a times, Fund managers attempted to move their AUM to more attractive investments but as an Investors you donot wish investment in other assets, you wish investment in Gold.
Unlike equity or bonds or deposits, the money that you invest in gold does not contribute to economic growth. An equivalent amount of money deployed in a business or any other productive economic activity will generate actual wealth and will grow larger in a very fundamental way, while a given quantity of gold will just remain the same.
however for those retail investors who’d still prefer to invest in gold, I believe that the Sovereign Gold Bond Scheme offered by the Government of India is much better alternative.
Lets check real life Example : HDFC Gold which started in January 2013 has offered return of just 4.56% pa since launch , much lower that any Equity or Bond fund.Even safest debt fund has provided higher returns than HDFC Gold Fund.So I believe your advisor is right.
Very important question. First I will explain what is portfolio turnover ?
Portfolio Turnover is the measure of the average buying and selling activity in the portfolio. It refers to the percentage of the portfolio that is bought or sold each year. A turnover rate of 50% means, half of the securities are exchanged every year.
The turnover rate is disclosed in a funds’ annual report.
If the fund focuses on Small cap stocks, it is natural for the fund manager to trade heavily and frequently.
Every time a fund manager sells a security at a profit, the investors face additional burder of brokerage fees and also STT etc. the fund managers are also concerned with their bonuses and commissions, and that is one of the reason for frequent transactions and profit bookings.
However , we all know that in strong large cap and midcap stocks, the longer period of investments give very impressive returns. The investor who has retained TCS for about 10 Years has reaped handsome gains. Same is the case with Titan, Tata consumer, L&T, Infosys,Reliance, HUL,HDFC Bank and many more shares. So when you have invested in a Large cap fund or Midcap fund or even Nifty Next 50 funds, the relatively longer investment period bring in bumper returns. So even in such cases, if your fund managers shows higher portfolio turnover then you must be cautious and evaluating other aspects, may decide to withdrawn your funds from such Funds.
You have very relevant question. Just like many investors feel confused about weightage to last one year returns and long term performance.
Many magazines and advisors suggest top-performing fund of past year or quarter. That is not time for you to buy into it. It is not advisable to sell a fund you hold just because it appears on the list of worst performers. Investment in shares are cyclical.If you overemphasize recent performance, you may be buying a fund at its peak. and you may selling a fund that is poised to do well now.
Your task as an invetor is to build a portfolio that will do well in all types of the market climates.That doesnot mean that each of your funds will be top performer every quarter. You should a portfolio which will complement each other in different environments.
If you give more weightage to one year return, and invest in such fund, there are chances that you are investing in a portfolio which is at its peak and downtrend may start. So instead of looking at last one year returns, look at the portfolio and evaluate the same for longer term performance.
Evaluation on the basis of long term performance eg 5 years, 10 years can highlight consistent performance of fund & there are higher chances that it can prove to be more rewarding.
Yes, you have very interesting question. Like you , many investors develop very large portfolio of overlapping stocks. It is very difficult to track such large portfolio.
First write down again each stock the category of it ( eg large cap, midcap,small cap etc). Also write down industry/sector against each of them . Then put stocks of each category and calculate their value and portion in your portfolio. You will realise that some stocks are some sectors have very high weightage in your portfolio.
Try to see that you have proper balance between largecap, midcap and small cap stock. Better that you have more weight to large cap and midcap compared to small cap stocks. Once you do this primary exercise, you will realise what is the problem with your portfolio.
Pl. stock related question be placed on chanakyanipothi.com
We have special Q & A section there. Here we welcome questions related to Mutual funds.
Dear Madam,
Sorry to inform, but you have created “ZOO” of Mutual fund Schemes.
Investment in Mutual funds DO requires diversification just like Equity investment yet investment in more than 12 schemes is not desirable. I think an investors should have invested in maximum 12 schemes.Even an investor with significant assets can put together a diversified portfolio with dozen funds.
Owning more causes problems in a couple of ways. First, such a large portfolio clearly suggest that an investor does not have any strategy. They simply add new funds as and when they see an advertisement or read a newspaper or a magazine..
Some investors choose a new fund each year for their retirement money, disregarding what they have already have and how the new fund fits in.
The second problem with holding scores of funds is that many of the investments will overlap. That means you will not achieve real diversification and you will pay more because you will be paying expenses on each of the funds.
The third problem is you will not able to study the performance of each of the 40 schemes. Simply tracking last one year performance is not real analysis of your investment.
To be well diversified, you want a group of funds that will perform differently in any given type of the market.
Many individual investors are not familiar with the concept of correlation. They buy a group of well known funds believing they have achieved good diversification. What they do not know is that large funds even of different fund houses are likely to hold the same well known stocks. So an investor might buy 10 funds spreading them out among different fund companies and still have done nothing to diversify.