After almost two decades, mutual funds are finally becoming popular among the aam investors. There is far greater acceptance today of this best investment mysteriously ignored by most Indians till recently.
Of course, there are still a few misconceptions in the minds of the "new" (and some old) mutual fund investors on how to choose the best funds.
The most common among them have been covered on many forums in the past.
I too had discussed the shocking mistakes mutual fund investors often commit.
However, here are a few guidelines that have received, relatively speaking, less attention — but are nonetheless quite critical and important.
First, choosing the best funds DOES NOT mean choosing the "top" performers. Instead, you have to focus your attention on the "consistent" players.
That's because the top performance changes quite often. There have been many funds that delivered the highest returns for a few quarters and then slipped very badly. Such funds were 'lucky' with a few stock selections. But over time they couldn't maintain their luck.
Whereas consistency is lot more stable. Such funds follow a diligent stock selection process and a long-term investment strategy. As such, they are able to deliver above-par performance across many years. Given that you have a long term plan to stay in the markets and are investing regularly through Systematic Investment Plan (SIP), such 'consistent' performers are the ideal funds for you.
As they say in cricket, form is temporary but class is permanent.
Second — and note the "subtle" difference — you should NOT focus on the mutual funds that will give "maximum returns"; but those that will be of "maximum help in you achieving your financial goals and desires".
Remember you are not in a contest where the winners will be rewarded. Rather, you are in competition with yourself... to meet as many personal goals as possible. Hence, your motivation should be to achieve "your" milestones; not to make more returns than your neighbour or colleague.
Mutual funds menu card comes with unlimited choice. They offer a very wide variety of schemes. Many of them would not be good for your financial profile. Hence, when you keep yourself in mind, your fund selection will be much more "appropriate" to you and your dreams.
Third — and most important — remaining invested for long term doesn't mean that you "invest and forget". No. You HAVE TO monitor your portfolio.
But beware!
This monitoring SHOULD NOT be a day-to-day exercise. In fact, that would be the worst thing to do. Reviewing and restructuring once every six months will be more than enough (unless there is some exceptional event in the interim).
Restructuring involves
a) Shifting from under-performers to above-par funds
b) Rebalancing the fund-wise exposure
c) Rebalancing the category-wise exposure
d) De-risking the portfolio by switching from High PE funds to Low PE funds
e) De-risking by switching from mid/small-cap and thematic funds to large-cap funds
f) Maintaining the intra-fund balance
Bottom-line: Choose funds that are best suited to realize YOUR financial dreams and diligently NURTURE your portfolio. This is the only sure-shot and simple strategy to make Rs.1 crore from Rs.1 Lakh.
Of course, there are still a few misconceptions in the minds of the "new" (and some old) mutual fund investors on how to choose the best funds.
The most common among them have been covered on many forums in the past.
I too had discussed the shocking mistakes mutual fund investors often commit.
However, here are a few guidelines that have received, relatively speaking, less attention — but are nonetheless quite critical and important.
First, choosing the best funds DOES NOT mean choosing the "top" performers. Instead, you have to focus your attention on the "consistent" players.
That's because the top performance changes quite often. There have been many funds that delivered the highest returns for a few quarters and then slipped very badly. Such funds were 'lucky' with a few stock selections. But over time they couldn't maintain their luck.
Whereas consistency is lot more stable. Such funds follow a diligent stock selection process and a long-term investment strategy. As such, they are able to deliver above-par performance across many years. Given that you have a long term plan to stay in the markets and are investing regularly through Systematic Investment Plan (SIP), such 'consistent' performers are the ideal funds for you.
As they say in cricket, form is temporary but class is permanent.
 |
| Three tips on how Rs.1 lakh can become Rs.1 crore. |
Second — and note the "subtle" difference — you should NOT focus on the mutual funds that will give "maximum returns"; but those that will be of "maximum help in you achieving your financial goals and desires".
Remember you are not in a contest where the winners will be rewarded. Rather, you are in competition with yourself... to meet as many personal goals as possible. Hence, your motivation should be to achieve "your" milestones; not to make more returns than your neighbour or colleague.
Mutual funds menu card comes with unlimited choice. They offer a very wide variety of schemes. Many of them would not be good for your financial profile. Hence, when you keep yourself in mind, your fund selection will be much more "appropriate" to you and your dreams.
Third — and most important — remaining invested for long term doesn't mean that you "invest and forget". No. You HAVE TO monitor your portfolio.
But beware!
This monitoring SHOULD NOT be a day-to-day exercise. In fact, that would be the worst thing to do. Reviewing and restructuring once every six months will be more than enough (unless there is some exceptional event in the interim).
Restructuring involves
a) Shifting from under-performers to above-par funds
b) Rebalancing the fund-wise exposure
c) Rebalancing the category-wise exposure
d) De-risking the portfolio by switching from High PE funds to Low PE funds
e) De-risking by switching from mid/small-cap and thematic funds to large-cap funds
f) Maintaining the intra-fund balance
Bottom-line: Choose funds that are best suited to realize YOUR financial dreams and diligently NURTURE your portfolio. This is the only sure-shot and simple strategy to make Rs.1 crore from Rs.1 Lakh.
