In the past year, the markets have managed a reasonably good imitation of Two-Face in Batman movies: in the second half of 2007, the indices were zooming upward out of sight, but in the first half of 2008 they plunged deep into the red. But we all know the law of the stock markets: with great returns comes great risk. That is the reason people with a relatively low appetite for risk prefer going the mutual fund way. The investors in equity funds suffered almost as much as those who invested directly in equities. Negative real returns coupled with a high inflation rate had investors and fund managers alike ducking for cover. In this scenario, investors are not entirely sure if they should sit tight and ride out the bumpy phase or bale out.
This is when investors begin to look at the old faithfuls—funds that have performed steadily and consistently regardless of market movements. These are the funds you will find in the second annual Money Today-Value Research ranking of India’s Best Mutual Funds. We have worked on the premise that a mutual fund should generate great returns, not great headlines. Our list of the 10 best funds across five categories features solid and consistent hitters that have performed well over the past 12 months and the past three years, and are poised for another growth spurt (Read “How Funds are Ranked”).
So, which funds made it to the top this year? The Sundaram BNP Paribas Select Focus fund tops the list as its focused approach resulted in good returns, even as several of its peers faltered. It looks like the Sundaram Mutual Fund has got its plans perfectly in place; The Sundaram Tax Saver tops the list of tax-saving schemes, and was, in fact, the only scheme that generated positive returns in the period we covered. Balanced funds also performed poorly, and the Principal’s Child Plan was the only one that announced positive returns.
Best Equity Diversified Funds
Best Tax Planning Funds
Best Balanced Funds
Best Monthly Income Plans
Best Floating Rate Funds
The other factor to consider is the emergence of new fund houses and new schemes. In fact, even as you read this, there’s likely to be a fund house planning to launch a new scheme and thinking up new and innovative products. Of course, choice is good, but sometimes too much choice can only lead to confusion. Analysing and comparing mutual funds will become important for both existing investors and new investors. Regular columnist Dipen Sheth takes a look at the way in which the mutual fund industry has reacted to bear phases. We also take a look at a short list of all-weather funds, selected by Kumar based on a fine blend of objective and subjective analysis.
All this is very well, but what should you really do if this were a bear market and not a correction that’s taking longer than usual? Disgruntled investors might exit from their funds, while others watch and wait. We debate whether those who have exited have done so at the wrong time and for the wrong reasons. More to the point, we discuss whether there’s really a “right” time to buy a fund (see “Opportunity Loss”). Investing is a constant phenomenon. Fund managers are paid to manage funds actively and to follow the fund’s investment mandate. However, the onus is on you, the investor, to regularly invest and actively manage your investment portfolio. Besides this annual ranking of best mutual funds, every issue of Money Today lists out the best performing schemes of the fortnight across eight fund categories. Use that as your investment guide.
If you actively manage your portfolio, you will know that a downturn such as this could prove to be a goldmine. But to be able to pick the right schemes at the right time requires some knowledge. You should, at the very least, know your risk appetite and the ability to figure out what funds and schemes suit your needs and appetite for risk (see “Build your Fund Portfolio”). If you’re already invested, use the tips here to review your fund portfolio and consider rebalancing it, if needed.
So, what about your existing investments? There are investment opportunities in the form of old funds in your portfolio that you may want to exit, a new fund offer with a unique investment idea that is still not there in your portfolio. You also need to look at market cycles to understand which sector to enter and which to exit, at what time. For instance, the mid-cap story did not play in 2007, but once the market starts moving up, it is a sector that is likely to get the maximum boost from the overall market movement. Likewise, the real estate sector which was the darling until mid-2007, seems to be out of favour.
Yes, the profiles of funds are changing, but not more than the profile of investors. The early mutual fund investors were financially savvy, high-income urbanites. Today, however, a significant proportion is smalltown, low-income investors. For the first time, investors from outside the top eight cities have contributed considerably to the fund industry. A lot of credit goes to the small SIPs that fund houses introduced in 2006-7 which benefited investors who can contribute as little as Rs 50 a month and yet get the benefits of stock investing.
|35 is the number of fund houses in the country||16 per cent is the rise in AUM of mutual funds between June ’07 and June ’08||Rs 5,660 crore collected by Reliance Natural Resources Fund is the biggest NFO|