What are the parameters to select the right funds? Is it the historical performance which will yield returns? What to keep in mind before making investments? How to select funds that would give you gains? Expert Pankaj Mathpal of Managing Director at Optima Money Managers gives top tips in chat with Swati Raina in the popular TV show Money Guru.
Comparing mutual funds with benchmarks
Every fund has a benchmark.
Like Small Cap funds have a benchmark in NSE Small Cap index.
Compare funds with their benchmarks to access the performance of the funds.
If the fund is performing better than its benchmark, it could be considered for investment.
Look for alpha in schemes
Alpha is the measure of risks in a mutual fund. Alpha of greater than zero means an investment outperformed, after adjusting for volatility. An alpha of zero suggests that an asset has earned a return commensurate with the risk.
It measures the performance of a scheme based risk adjustment.
It compares risk-adjusted performance with benchmark index.
Higher the alpha in a fund, better is its performance.
1.0 alpha means that fund has outperformed the benchmark index.
-1.0 alpha means fund has underperformed.
Past Performance
Past performance is one of the parameters but not the sole criteria.
Many investors buy a fund only based on past performance.
Do not just pay attention to returns given by the fund over 1 year, 3 year and 5 years.
Don’t buy only those funds which are giving highest returns.
Return could change on a daily basis. Afund which is doing fine today may not do well going forward.
Look for Sector Allocation
Understand sector allocation of funds.
Performance of all sectors may not be same at same time.
Sector allocation is the responsibility of the fund manager.
A wrong sector allocation could prove to be detrimental.
Fund Manager Strategy
Strategy of fund manager must be spot on
A mistake by fund managers could prove costly for the fund.
A good strategy could give good returns even if markets are not doing well.
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Santosh Kumar, West Bengal
Age – 43 years
Rs 7000 investment in 3 funds
Investment for 12 and 10 year old children
Goal: Education and marriage
Seeking advice for Rs goals of 2 cr corpus
Portfolio and Investment per month
ABSL Focused Equity Fund – Rs 2000
HDFC Index Fund Nifty50 – Rs 3000
Tata Digital India Fund – Rs 2000
PPF – Rs 5000
Sukanya Samriddhi Yojana Rs 5000
Advice to Santosh
For Rs 2 cr goal, current investment not enough. Increase in SIP is recommended.
The education goal is 9 years ahead. SIP of 1 lakh is required.
The education goal is 11 years ahead. SIP of 73000 is required.
PPF investment will give returns of Rs 15.64 lakh in 15 years.
SSY will give returns of Rs 29.68 in 21 years.
Sumit Singh Rawat
Age 35 years
Income Rs 67000
Goal: Girl child education, marriage and retirement
Rs 20000 SIP in 6 funds
Sukanya Samriddhi Yojana Rs 2000; PPF Rs 4000
Rs 1 cr goal for education
For retirement in 25 years, Rs 3 cr target
Investment and SIP
ICICI Pru. Val. Disc – Rs 5000
Canara Robeco Bluechip – Rs 5000
PGIM Ind. Midcap Opp – Rs 2500
Axis Multicap Fund – Rs 2500
Axis Smallcap Fund – Rs 2500
Nippon Ind. Small cap – Rs 2500
Advice to Sumit
The selected schemes are good.
Increase SIP by 10 per cent every year.
The current investment will help in attaining goals
Add inflation to the
