Mutual funds come into picture when you intend to invest in a particular asset class and don?t have the time and/or expertise to do so. Mutual funds are seen as the decision makers once you have given them the charge of your money. Some of us, however, think that once the investments are done the things work on their own and there is little role to play for the investor. This may not be the right approach. For last four years Indian capital markets have seen a dream bull-run across sectors. The rally in the market ensured that most of us, who were in the equity markets, would be rewarded as per their stakes. There was little to think about. However, if one has to take some cues from the market?s performance in the last 6 months, things may not continue like this.
The sluggish market in February and March made some of us talk the end of bull-run. However, the market ensured that by reaching the 16000 levels all of them would be proved wrong. The euphoric atmosphere, however, came to an abrupt end as the Sensex experienced falls in line with global markets.
If the going is not as smooth as they were, going forth, what should one do? There is no need to trade the market. The markets reward the long-term investors with higher returns. However, you must understand that mere presence in the market may not reward you anymore. Only a ?sensible? presence makes sense.
After investing money in a particular stock there is a need to track the company?s business and its movement in the stock market. The same holds good for your mutual funds investments.
There are various factors that make this tracking important. The mutual fund industry is growing. There are many new players entering the industry. This not only offers options to investors but also to fund managers. There are many churns in the fund management teams of many fund houses. Fund managers are changing jobs, thanks to hot job market.
In equity funds, the fund performance is more dependent on the individual fund manager and his stock picking ability. Though most of the fund houses claim an institutional approach, the individual judgement of the fund managers differentiate between the winners and laggards. Had it not been the case, why would two schemes of one fund house, with similar investment objective have delivered differently.
If you have invested in a fund with an intention to be with one of the performing fund managers, then please do take the trouble to check whether the same person is managing your money. There are cases, where the schemes have delivered even after the ?celebrated? fund manager has left. If it is not the case with your scheme and you are keen to be with the person and not with the institution, opt for an exit.
A point to note, don?t exit just because the fund manager has changed. Do give some time to the new fund manager to prove his mettle, if you are not insistent on who is in charge of your money. Sometimes things may change for the better.
Second important factor is the performance of the fund. There are various agencies that offer quarterly, half-yearly and yearly performance of the funds. Do take the trouble to go through the performance of your fund. Instead of comparing your scheme with the best performing scheme in the market, compare it with the benchmark index set. There are chances that your scheme may not deliver the highest returns. But if it is delivering in line with the category performance and as per its objectives, then there is no need to call it a ?dog?. There are occasions where a scheme may not deliver in a particular quarter. Hence, you should give the fund manager some time to perform. Sometimes, the calls taken by the fund manager take time to deliver. However, sustained underperformance to the benchmark indices warrants exit.
Theme-based or sector-specific funds are another slippery area where you have to be extra-agile. These funds invest as per the theme-specific mandate and hence the fund manager has fewer options to choose from, compared to their diversified equity counterparts. This amounts to high concentration risk. Internal de-risking is a must.
If you have invested in a sector fund because of any particular character such as mid-cap tilt, or a preference to a particular segment, then keep a track of the portfolio of the fund. This is equally true for the other mutual fund schemes.
The portfolios of the mutual funds have been delivering well. However, on a larger base, posting handsome returns will be a task and hence the expenses come into the picture. Do track the expenses of your fund. You will get to know the number in the annual and half-yearly statements. Higher the expenses lower your rewards.
Keeping your eyes open and acting when it is really necessary can actually help you build the high rise mansion of your wealth.