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Home > Business > Business Headline > Personal Finance


Want to invest in MFs? Keep it simple!

Personalfn.com | October 29, 2007 09:29 IST
Last Updated: October 29, 2007 09:42 IST


Recently we met an individual who was a bit of a novice to the world of mutual funds. He started investing in mutual funds about a year ago.

And his portfolio comprised of the following -- a close-ended mid cap fund, some thematic funds (of the infrastructure variety) and a couple of global funds. Apart from the fact that most of the funds were new fund offers (i.e. unproven entities), another striking feature was that the portfolio lacked even a single plain-vanilla offering like a diversified equity fund. While the individual in question can be excused, given that his lack of familiarity with mutual funds, this trend isn't entirely uncommon.

Investors' fascination for an 'out-of-the-ordinary' or 'fancy' investment avenue is baffling. There is an inexplicable urge in investors to add an unusual investment avenue to their portfolios. For example, a conventional diversified equity fund with an impressive long-term track record routinely gets the thumbs down. The reason being -- it's seen as a boring investment (whatever that means). On the other hand, thematic funds like infrastructure funds, service sector funds and micro cap funds are gleefully lapped up.

There is a dire need for investors to understand that successful investing has nothing to do with how fancy or interesting their investments sound. An investment avenue is required to help the investor achieve his financial goals, while exposing him to acceptable risk levels. And in the mutual funds segment, conventional plain-vanilla offerings deliver the goods better than most others. An investor building a mutual fund portfolio should stick to proven diversified equity funds, balanced funds and monthly income plans, among others depending on his risk profile and investment objective.

Holding a solid core portfolio comprised of aforementioned funds should be every investor's priority. Fancy offerings like thematic funds should ideally be given a miss. And if at all they are to be invested in, it should only be after a core portfolio is in place. Secondly, such funds should occupy a minor portion of the portfolio and only if the investor's risk profile permits the same. Keep it simple -- that could well be the mantra to financial success.

Equity markets shrugged off concerns about the P-Notes issue and staged a strong comeback this week. The BSE Sensex rose by 9.58% and closed at 19,243 points; the S&P CNX Nifty ended at 5,702 points (up by 9.34%). The CNX Midcap rose by 10.67%, before settling at 7,292 points.

Leading open-ended equity funds

Equity Funds

NAV (Rs)

1-Wk

1-Mth

6-Mth

1-Yr

SD

SR

LIC [Get Quote] Equity Plan

30.01

16.87%

22.48%

44.09%

54.15%

7.91%

0.29%

Taurus Starshare

64.43

16.81%

17.42%

58.23%

85.73%

9.09%

0.40%

Bonanza Exclusive

53.26

15.98%

18.20%

54.78%

64.54%

7.98%

0.37%

UTI Banking

30.83

15.21%

11.70%

49.30%

67.28%

7.89%

0.31%

Tauras Discovery Stock

23.09

14.59%

8.35%

47.54%

63.07%

9.58%

0.23%

(Source: Credence Analytics. NAV data as on October 26, 2007.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument)

Funds from Taurus Mutual Fund dominated the equity funds segment. LIC Equity (16.87%) led the pack, followed closely by Taurus Starshare (16.81%). Bonanza Exclusive (15.98%) and UTI Banking (15.21%) also featured among the top performers.

Leading open-ended long-term debt funds

Debt Funds

NAV (Rs)

1-Wk

1-Mth

6-Mth

1-Yr

SD

SR

Reliance [Get Quote] Income

24.67

1.19%

2.12%

6.12%

7.76%

0.67%

-0.08%

ICICI [Get Quote] Pru. Income

23.70

1.14%

2.19%

6.91%

8.58%

1.02%

-0.04%

HDFC [Get Quote] Income

17.65

0.93%

2.12%

6.16%

6.43%

0.86%

-0.24%

HDFC Gilt

16.22

0.93%

1.44%

4.05%

4.59%

0.54%

-0.52%

Templeton GSec.

17.16

0.91%

1.34%

3.63%

5.61%

0.80%

-0.16%

(Source: Credence Analytics. NAV data as on October 26, 2007.)

The 10-Yr 8.07% GOI yield closed at 7.95% (October 26, 2007, source: Reserve Bank of India [Get Quote] website), 1 basis point below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.

Reliance Income (1.19%) emerged as the best performer in long-term debt funds segment; ICICI Prudential Income (1.14%) and HDFC Income (0.93%) occupied second and third positions respectively.

Leading open-ended balanced funds

Balanced Funds

NAV (Rs)

1-Wk

1-Mth

6-Mth

1-Yr

SD

SR

Escorts Balanced

66.96

11.83%

9.85%

40.20%

52.94%

5.90%

0.39%

BOB Balanced

31.84

10.06%

17.36%

36.59%

40.70%

5.90%

0.28%

HDFC Prudence

147.05

9.50%

9.49%

27.39%

39.16%

4.38%

0.46%

LIC MF Balanced

58.10

9.24%

13.76%

33.44%

36.22%

6.10%

0.33%

Tata Balanced

69.09

8.77%

11.71%

33.68%

51.19%

5.72%

0.42%

(Source: Credence Analytics. NAV data as on October 26, 2007.)

Powered by a strong showing, Escorts Balanced (11.83%) occupied the top slot in the balanced funds segment. BOB Balanced (10.06%) and HDFC Prudence (9.50%) also featured in the top performers' list.

Gold exchange traded funds (ETFs) have made a mark for themselves in recent times. Given that gold has conventionally been a favoured investment destination for domestic investors, perhaps the same isn't entirely surprising. Notwithstanding the investor interest, gold ETFs are like any other investment avenues and have their fair share of pros and cons.

We believe there is a need for investors to objectively evaluate the gold ETF option and to ascertain if the same fits into their portfolios. To know more about gold and how good an investment opportunity it is, visit the Personalfn Gold Page. Click here!

By Personalfn, a financial planning initiative. Your Free Guide to Financial Planning is just a click away! Get it now!




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