The Hindu Business Line : Investors take more risk for higher returns!

Imagine a situation where you have staked a lot of money in mutual funds. Imagine breathing trouble, sleepless nights, terrible Monday mornings, the whole works.

For all you know, the two scenarios may actually gel at some point of time, given that one concern which may at the end of the day make you very, very unhappy. To put it in the form of a question: What happens if my fund manager delivers sub-standard, inferior returns?

While sub-standard and inferior may not be the right words for our immediate requirement, let us simply say that the ordinary mutual fund investor needs to become aware of the possibility that his investments may generate no more than oh-so-average returns over a period of time.

More than a decade after the first private-sector player joined ranks with the several public sector-promoted fund houses that were already around, the attitude of common fund investors has changed beyond recognition.

Sure, basic needs such as stability and capital formation have not been sacrificed at the altar of greater risk-appetite and greed, but investors today are willing to stake more for higher returns. The choice before people is wider and many of them are also more leveraged than before.

The question is, has their new-found love for higher takings led at least some of them to go in for investments that are far too risky?

Some poor returns

Now, before you come to a conclusion, check out the funds that have turned in relatively poor returns. Let us restrict ourselves to equity funds here. If you see the last one-year performance figures, you may be surprised to find that quite a few schemes have provided single-digit returns.

Compared to top performers - notably Sundaram Select Midcap, which occupies the No 1 slot with over 50 per cent - these look shoddy indeed.

Not surprisingly, some of the tail-enders were launched during the height of the last bull run (which many think has ended in May). The list comprises such names as Principal Dividend Yield, Tata Midcap, SBI Magnum Emerging Businesses, UTI India Advantage Equity and DBS Chola Opportunities.

If you had invested in such funds in the last one year, you would have ended up with anything between 3 per cent and 9 per cent, not quite an impressive score as any lay investor would tell you. Incidentally, the toppers' list includes Sundaram Select Focus, DWS Alpha Equity, SBI Magnum Contra and SBI Magnum Equity. Each of these has delivered at least 40 per cent.

It is not surprising that a whole lot of schemes are right there in the middle, delivering a pedestrian 25-35 per cent during this period.

These include HDFC Index Sensex Plus (32 per cent), Reliance Vision (31 per cent), JM Equity (28 per cent) and the like. Some date back to the mid-1990s, while some others are not so old.

What was right with these schemes? More importantly, what went wrong with the tail-enders? While these questions would have no easy answers, investors need to find them before they fish out their cheque books once again.

It would also be good to remember that old adage, something that we have used earlier: More money has been lost by reaching for higher yields than at gun-point!

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

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