The biggest challenge a fund manager faces is the overvaulting expectation of an investor. ``Investor expectations are certainly out of line,'' warns Rajiv Vij, country head and CEO, Templeton Asset Management (India) Pvt Ltd.

Vij's caution comes at a time when retail investors have found mutual funds to be an alternative to the IPO market. With oversubscriptions for any IT IPO averaging 45 to 50 times the issues size, retail investors perceive equity funds to be the closest substitute.

If an IPO gets listed at a premium of 200 to 300 per cent after a wait period of about 45 days, the chances of making at least a 50 per cent gain in as many days in equity funds is driving a number of investors to mutual funds.

But mutual funds are not for the short-term. ``In the short-term, you will find that the Net Realisable Value (NRV) is lower than the Net Asset Value,'' points out Vij. There is generally no relationship between the performance of a fund and the investor performance.

It is important to select a fund with a diversified portfolio to ensure stability and consistency in performance, says Vij who believes in above- average returns and below-average risk.

Vij emphasises the need for discipline in investments and clarity of the investor's goal to achieve superior returns.

``The role of systematic investment plan (SIP) is crucial for this,'' he points out illustrating the example of systematic investments in Templeton India Growth Fund. Since inception, the annualised return on investment made in TIGF through the SIP route was 29.61 per cent. Rs 1000 invested every month over a period of 40 months was worth Rs 63,021 (as on January 4, 2000). During the period, the average purchase price was Rs 10.07.

``It is important for the investors to handle emotional and financial stress,'' he explains pointing to a situation where an investor can end up with a 20 per cent loss while the fund has made a 20 per cent gain.