It is indeed a daunting task to select a Mutual Fund scheme that meets the investor’s financial objective, fits into the financial plan and is consistent with investors risk appetite. Selection of a handful of 2 or 3 funds from thousands of schemes requires experience, expertise and in-depth understanding of current state of Equity markets.
We at MutualFundwala present the following 4 points, based on which we recommend Mutual Funds to our investors.
Step1: Fund House: Mutual Fund house or AMC (Asset Management Company) operates mutual funds. In all, there are 43 fund houses. The 4 large AMCs (or Fund houses) are HDFC Mutual funds, ICICI Prudential Mutual Funds, Reliance Mutual Fund and UTI Mutual Fund. Other fast-growing AMC’s are L&T, Mirae, Motilal Oswal, Franklin Templeton and SBI. Large and well-established AMC’s have an edge over new smaller AMC’s. Large AMC’s have a longer track record of fund management, have established systems for stock analysis and tracking. They can also engage expensive research analysts and Fund managers. So in nutshell, an investor while investing in a large AMC can be sure of the better brand, reputed fund managers, longer track record, better systems and investor servicing. Size of the AMC is assigned 20% weightage.
Step2: Age of the Scheme and Corpus: The inception date of the scheme is an extremely relevant variable. schemes with longer histories have a longer track record that gives huge comfort to investors. Schemes like Franklin India Bluechip and Franklin India Prima Fund (both started in Dec of 1993), HDFC Equity fund (started in Dec’08, 1994) are adored by investors. Similarly, scheme corpus is also relevant for selecting a scheme. When a scheme does well, more and more investors start to invest swelling the scheme size. This also brings down the expense of the scheme. Mutualfundwala assigns this 20% weightage.
Step3: Investment Objective of the Scheme and investment pattern: Retail investors should carefully read the scheme objective and figure out if it fits into the overall objective of their financial plan. Certain schemes aim at providing regular income and are low risk. Others are growth oriented. Most importantly, an investor should carefully look at the sort of companies which the scheme is investing in. Weather the Equity scheme is Diversified equity, large cap or mid/smallcap category. MutualFundwala assigns this 50% weightage.
Step4: Past performance and rating by prominent websites: Past performance adds a lot of comfort, but also remember “Past performance may not be repeated in future”.
Reputed Financial websites like www.Moneycontrol.com, www.valuereserachonline.com, www.icraonline.com and www.mutualfundsindia.com rate the scheme based on its consistency and out performance of the benchmark. We at Mutualfundwala will give this 10% weightage.