Mutual funds: Past performance irrelevant if there is major change in fund strategy

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New Delhi | Published: July 3, 2018 2:11:37 AM

Post Sebi’s re-categorisation norms, many MF schemes are undergoing change.

mf, mutual fundMF units can be transferred only after the demise of the unit holder.

l As many schemes are getting merged, how will I evaluate funds based on past performance?

—Dhruv Shah

Post Sebi’s re-categorisation norms, many MF schemes are undergoing change. The schemes that are getting merged will cease to exist and hence will not carry any historic performance. For surviving funds there are three scenarios. 1) If there is no material change in the fund’s previous investment strategy, then past performa-nce can be relied on to evaluate the fund. 2) If there is a minor change in strategy, then depending on it, the risk-return characteristics of the fund’s performance may possibly change. One would need to wait for a few months to observe how significant this change is as compared to the past performance and then evaluate the fund. 3) If there is a major change in the surviving fund’s investment strategy, then the past performance becomes irrelevant and hence cannot be relied upon to evaluate a fund. In that case, investors would have to rely on the track record of the AMC and the fund manager. What is the record of the AMC/fund manager for managing similar strategies? Whether the new strategy fits into the investor’s investment objective, risk profile, time horizon, amongst others.

l Is there any way to transfer some of my mutual fund units to my daughter?
—Arun Roy
MF units can be transferred only after the demise of the unit holder. You can make your daughter a nominee of your folio. However, if you want to gift your daughter your units now, you would need to redeem those units and then transfer the proceeds to your daughter’s account.

l Since the markets are very volatile, should I reduce my SIP amount?

—Avik Kumar

Since a retail investor does not have enough time and resources to diligently track the markets, Systematic Investment Plan (SIP) becomes a viable option that helps an investor avoid the risk of timing the markets and benefit from rupee cost averaging, i.e., buying more units when NAV is low and less units when NAV is high. Moreover, it helps one avoid behavioural pitfalls like buying more when everybody is buying or selling when everybody is selling (herd mentality). Hence, volatility in the markets should not be a reason to reduce the amount of SIP.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonal finance@expressindia.com

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