The mutual fund industry has more than 1000 schemes. Applying filters can make things simple for investors.
For decoding these filters, Cafemutual Confluence Investment Marathon 2021 (CCIM 21) hosted Dhirendra Kumar, Founder and CEO, Value Research, who simplified the fund selection process.
Here are the key pointers that Dhirendra shared in conversation with Prem Khatri, Founder & CEO, Cafemutual.
Tips for choosing the right mutual fund
Investment time-frame
- Up to 5 years of time period can be categorized as short term/medium term
- Keeping in mind the time-horizon narrows down the 30 plus available fund categories thereby simplifying the fund selection process
- Funds needed in foreseeable future can be parked in debt funds while money needed in five years or more could be invested in equity
- Long term investors getting started for the first can opt for aggressive hybrids or balanced advantage funds
- First-time investors in search of fixed income avenues could consider short-term debt funds
Fund-specific filters
- Mutual fund ratings can help in narrowing the selection universe by filtering out one-star and two-star rated funds
- While investing in debt funds, credit rating split must be considered - i.e. the fund invests what percentage of assets in which instrument category like sovereign bonds, triple-A, double-A rated, etc.
- Funds like sectorial and thematic fall under the no-go categories for investors seeking diversification through mutual funds
- Investors seeking high-quality funds must look out for consistent returns over funds' ten-year performance
Tips for existing investors
- Investing during funds’ lean period has its rewards. It is advisable to wait for five years before deciding to redeem due to underperformance in cases of funds having good performance history of more than ten years
- Small cap funds with a smaller AUM are likely to do better. However, once their AUM exceeds Rs. 2,000 crore, it signals the need to explore a new fund
- Markets have been in the vicinity of the all-time high for the last one and half years. For investors not having time on their side and investors who accidentally drifted into the markets with short-term money can exit now. Whereas, investors with long term money should devise an asset allocation plan. This may also allow them with rebalancing opportunities when the markets correct
Dhirendra’s session was crisp, concise and highly informative as it shared tips not only for new but also for existing investors.
Watch this video to hear it straight from the horse’s mouth.
