Adopt The Right Approach To Invest In MFs

Mutual funds are an efficient and a simple way to invest in the markets, i.e. both, equity as well as debt markets. However, selecting the right funds and that too in the right proportion is not that easy. Considering that there are hundred of funds, many of which follow different investment philosophies and strategies, it can be quite overwhelming for the investors to invest in the right way. It is, therefore, important to adopt the right approach while selecting the funds as that can go a long way in achieving your investment objectives. One of the ways to ensure success is to take help of a professional advisor. However, getting hold of a good advisor itself can be quite a daunting task.

If you are a mutual fund investor and have been following strategies that are based on certain misconceptions, it is time to have a relook at them and take corrective measures. As mutual funds in India are evolving, so are different investment strategies to get the best from them. If you have been taking help of an advisor and still find that your portfolio hasn’t delivered, it’s time for you to take stock of the situation and act. While an advisor can be crucial in ensuring long-term success, it is equally important to ensure that you are dealing with someone who has the ability and the knowledge to take care of your investments.

Many investors have a fancy for New Fund Offerings (NFOs). Many advisors too try to take advantage of this instrument. Not only they find it easy to convince investors to invest in NFOs, but also at times earn more money in the process. The key feature highlighted by them is ‘at par NAV’ as against much higher NAVs of existing funds. The fact, however, is that the performance of a fund largely depends on the quality of the portfolio, its exposure to various industries and segments such as large cap, mid-cap and small-cap as well as investment strategy followed by the fund manager. The logic that investing in any and every NFO guarantees success is completely unfounded.

However, it is not to say that one should never invest in NFOs. An investor’s decision on whether to invest or not should depend on what the fund has to offer and what he already has in the portfolio. The fund houses launch new funds to have a basket of products so as to cater to investors with different risk profiles, time horizon and investment objectives. Therefore, one can consider investing in NFOs if the scheme in question has some compelling features or follows an investment strategy where it need not be different like in the case of an index fund. A common investor generally needs to stay away from ‘specialty’ and ‘thematic’ funds. In a booming market, one comes across many NFOs that sound very attractive and investors often get tempted to invest in them. Therefore, one needs to analyze the features properly before taking the plunge.[PAGE BREAK]

Similarly, investing in top performing funds can be quite tempting for investors. After all, who wouldn’t like to have winners in his portfolio? Many advisors also use this as the USP and find it easier to convince investors. However, investing in mutual funds is not about chasing the top performing funds but it is a process wherein one needs to ensure that one selects funds that suit one’s requirements and risk profile.

If one follows a strategy of investing in top performing funds, it might result in over-exposure in one segment of the market and/or under-exposure in another. As we all know, different segments of the market perform differently in different market conditions. Therefore, one might find mid-cap funds at the top of the chart at one point of time and large cap funds at another. In fact, if one were to select top performing funds at present, different sector funds and mid-cap funds would dominate the portfolio.

Remember, to be a successful mutual fund investor, it is necessary to have the right mix of funds in the portfolio and select funds that have a track record and the quality of portfolio that can give you the confidence of a good performance in the future too. Don’t forget to analyze the performance of your funds on a continuous basis to ensure that your portfolio remains on track.