The Hindu Business Line : FMCG funds score over others

HAVE you lately taken a look at the one-year performance figures of various categories of equity funds? If you did, you would know that FMCG funds are fast consolidating their lead over the others, thanks to the 80 per cent or so that they have recorded in the past year.

At the other end of the spectrum are funds dedicated to banking and technology stocks, ones that have recorded 29 per cent and 47 per cent respectively.

Obviously, the ITCs, the Daburs and the Maricos of the world have done well for themselves on the stock market, a situation that has led to the rise in NAVs of the funds that invest in them. Some of the banks and tech companies on the other hand have ended up as laggards, relatively speaking of course.

The situation, marked as it is by these two extremes in the performance sweepstakes, is currently prompting investors to raise a lot of issues relating to the selection of the best possible funds.

But how should the average investor choose the `best of breed'? Do diversified equity funds present the optimum choice? Or is there a very strong case for investing in sectoral funds too?

Such questions - apparently they seem very rudimentary, but believe me, they are important - are actually being asked all the time.

Investors clueless: Distributors point out that many of their clients are quite clueless when they approach MFs for the first time. The plight worsens when prospective investors are fed with colourful product literature, combined with charts showing comparative returns of various funds. We will deal with that separately some other day.

In reality, the confusion becomes greater when investors are faced with many similar-sounding options. In the diversified growth category, for instance, there are plenty of me-too products. And a lay investor may well find it difficult to select the finest schemes from among a medley of choices.

Distributors draw attention to the view that the solution (or at least a part of it) lies in the performance figures.

"Choose a fund that has provided superior returns over the past years, one that has surpassed its rivals," is a recommendation heard quite commonly in investment circles. But then, investors must remember that a fund that has done well earlier may not repeat its feat in times to come. As the oft-quoted caveat goes, past performance is no indication of the future.

Confusing nomenclatures: This also brings us once again to fund houses' attempts to provide intriguing names to their products. As observers point out, the trend simply refuses to die down. In the past we have had some players choosing thematic tags, while others have selected names that revolve around specific investment styles. A few have even used abbreviations to connote special meanings. We need not specify any names here, a quick look at the NAV tables will give you a fair idea.

The point is exotic names must not baffle investors. People should know exactly where their money is going and how fund managers intend to use their savings before they sign cheques. No one will benefit - least of all the asset management industry - if an investor ends up buying a product he really does not need.

Feedback may be sent to nilanjan@thehindu.co.in

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