WHICH MUTUAL FUNDS TO INVEST IN

Over 21 Asset Management Companies and more than 3000 mutual fund schemes raise the worry on choosing the mutual fund schemes for a new investor. Generally , Investors pursue the ranking of mutual fund schemes on different websites available in this space and try to figure out the number 1,2 ,3…… mutual fund schemes .He then invest into these schemes. Till this time, it looks simple .But the problem arises when he again browses the same website and finds some other schemes in the place of one in which he had invested .To add to his surprise, the schemes keep on changing on monthly basis.

There are number of agencies which do the ranking of MF and publish the same in different media .One needs to understand the ranking method whether it is on mark to mark return basis ,CAGR basis and so on. E.g.Valueresearch evaluates the fund on the basis on 3 yrs returns with risk adjusted ratio and then rates the fund .ICRA takes two yrs performance on CAGR basis. Due to this, different schemes appear at the different agencies. Secondly ranking sometimes does not specify the category of the fund i.e.Midcap, large cap etc. The silver line makes the ranking indisputable “Past performance is no guarantee of future of returns”.

During the recent conference held in Mumbai, I happened to meet Mr. Dhirendra Kumar, founder of “Valueresearch”. He mentioned that one should look at ranking as elimination process rather than just
selection process. Today’s 5 star rated fund may become 4 star next month. One should think twice in selecting 3 star and the below rated funds.Most of the investors choose the fund that has given the best returns in the last year .In fact, Mutual fund companies also advertise these returns as it is easier to get money in best performing fund than
average performing fund .You can see numbers of IPO’s coming now at this market level .Where were they all last year when market was below 10,000? It is easier to raise the money in such market conditions and same things apply to the mutual fund.

In chasing the performer, investors make their own index of stocks. It looks like AMFI website while looking at their MF portfolio. The question of “which fund to invest in” remains the question for lot of
investors forever.