At Personalfn, we are routinely asked questions like, "why don't you recommend NFOs (new fund offers) or offerings from new AMCs (asset management companies)."
Views like, "if we don't give a chance to these new funds and AMCs, how will they be able to prove their worth", are put forth in support of these queries. But what really baffles us the most, are the views like "there is no harm in investing at least the minimum investment amount in the NFO". We believe that, even if there might be no harm, there is no need to invest in the same as well.
To set the record straight, per se, we have nothing against NFOs. We don't recommend most NFOs, simply because we fail to see any value add or uniqueness from investors' perspective. This holds true for offerings from both existing as well as new AMCs. Furthermore in the case of a new AMC, vital factors like investment processes and systems are yet to be tested.
Our preference is for time-tested funds that have track records across market phases. If the choice is between two comparable offerings, of which one is untested and the other a proven performer, we prefer the latter. And rest assured, when we come across an NFO offering an attractive investment opportunity for investors, we are the first to put forward our view and recommend the same.
We have always maintained that investing is not a one-time activity; rather, it's a process and should be carried out in a diligent manner after putting in due thought. Investing in a fund with a view to give it the opportunity to prove its mettle cannot form a part of investment process. The investor's money is not supposed to provide for the AMC's learning curve.
There are lots of funds available, but not all are worth investing in. Similarly, there are lots of NFOs being launched nowadays and the onus to 'give them a chance' doesn't rest with investors. Given that most NFOs launched in recent times have been similar to the existing funds, hasn't really helped the cause of NFOs either.
On their part, investors need to build their mutual fund portfolios by investing in the right funds, in line with their investment objectives, needs and risk appetites. Over a period of time, investors should consolidate their existing mutual fund portfolio by investing their surplus monies in the same.
An NFO should be included only if it fits the bill and can add value to the portfolio. The fact that it's an NFO doesn't count as a valid reason for getting invested.
Investing in a frivolous manner in just about every available NFO will only lead to a fragmented investment portfolio. And that is certainly not something, investors would like to land themselves with.
This week proved to be good for investors as stock markets closed in positive terrain. The BSE Sensex posted a gain of 3.67% to close at 14,303 points; the S&P CNX Nifty ended at 4,215 points (up by 3.38%). The CNX Midcap rose by 4.55%, before settling at 5,536 points.
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 6-Mth | 1-Yr | SD | SR |
| Reliance Banking | 43.40 | 9.18% | 17.58% | 35.92% | 7.69% | 0.20% |
| JM Emerging Leaders | 11.38 | 8.59% | 8.48% | -5.56% | 7.37% | - |
| UTI Thematic Banking | 22.45 | 7.36% | 10.59% | 42.45% | 7.45% | 0.25% |
| Reliance Media & Ent. | 28.53 | 6.83% | 38.54% | 44.66% | 7.83% | 0.41% |
| Magnum Emerg. Business | 30.84 | 6.68% | 10.50% | 8.59% | 7.94% | 0.29% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument.) (Standard deviation highlights the element of risk associated with the fund.)
Funds with predominant mid cap holdings surfaced among top performers in the equity funds segment. Reliance Banking (9.18%) occupied the top slot, followed by JM Emerging Leaders (8.59%) at second position. Another fund from Reliance Mutual Fund i.e. Reliance Media & Entertainment (6.83%), also featured in the top performers' list.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 6-Mth | 1-Yr | SD | SR |
| Kotak Gilt Invest. | 23.69 | 0.42% | -0.58% | 4.06% | 0.87% | -0.30% |
| Tata GSec | 23.44 | 0.31% | 1.49% | 5.02% | 0.68% | -0.39% |
| HDFC Gilt | 15.67 | 0.29% | 0.54% | 2.54% | 0.52% | -0.63% |
| Principal Gilt | 16.05 | 0.28% | -1.47% | 3.22% | 0.83% | -0.25% |
| UTI Gilt Advantage | 11.40 | 0.26% | 0.83% | 4.86% | 0.57% | -0.20% |
The 10-Yr benchmark 8.07% GOI yield closed at 8.14% (May 18, 2007, source: Reserve Bank of India website), 1 basis point above the previous weekly close. Bond yields and prices are inversely related, with rising yields translating into lower bond prices and net asset value (NAV) for debt fund investors.
Gilt funds (government securities funds) ruled the roost in the long-term debt funds segment this week. Kotak Gilt Investment (0.42%) surfaced as the top performer, followed by Tata GSec (0.31%) and HDFC Gilt (0.29%) at second and third positions, respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 6-Mth | 1-Yr | SD | SR |
| Escorts Balanced | 50.49 | 4.12% | 12.55% | 18.27% | 5.77% | 0.35% |
| DSP ML Balanced | 41.46 | 3.99% | 11.42% | 22.04% | 5.14% | 0.39% |
| Birla Sun Life 95 | 190.24 | 3.61% | 10.68% | 20.34% | 5.20% | 0.37% |
| Magnum Balanced | 26.92 | 2.98% | 7.55% | 16.34% | 5.59% | 0.40% |
| Tata Balanced | 53.42 | 2.91% | 12.39% | 18.80% | 5.65% | 0.34% |
Escorts Balanced (4.12%) led from the front in the balanced funds segment followed by DSP ML Balanced (3.99%) and Birla Sun Life 95 (3.61%).
With so many existing mutual funds and many more being launched every month, the challenge for investors is to ensure that they are invested in the right fund. To make this task easy for investors, this week, we put forth a 10-step guide for evaluating mutual funds, which will facilitate investors in making informed investment decisions.
In the mutual fund industry, the launch of NFOs could well be a never-ending process. But, investors ought to determine whether the same are right for them; the funds should match investors' risk profiles and investment objectives. The decision to invest in a fund should be taken only after evaluating it on all relevant parameters.
By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue -- Real Estate & You - please click here.
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