The Hindu Business Line : Learning centres on the Web

I want to make a start with mutual fund investing. I would like to learn more about mutual funds. Where can I get information on the A-Z of mutual fund investing? I also want to know how to assess mutual fund performance so that I can select funds for my portfolio.

Rahim

You can get information on the basics of mutual fund investing from specialised books on the subject, financial magazines and from fund houses, on request. But here we suggest a few resources on the World Wide Web that you can access for free, for a good understanding of how mutual funds work.

For succinct articles on what mutual funds are and how they work, check the investor education section of www.ici.org (the US mutual funds body) and the investor publications section of www.sec.gov (the US regulatory body). Here, you will find articles on how mutual funds work and types of funds, to name few topics. You will also find sections that demystify terms often used in mutual fund investing.

Some of the laws and regulations applicable to mutual funds abroad may not be applicable in India. Domestic mutual funds may also be subject to additional disclosure or procedural requirements. Funds in India often have product features (such as Dividend and Growth option) not common in the US.

The learning centres on www.pruicici.com and www.franklintempletonindia.com offer simple insights on how funds work and how you can choose between funds. www.standardcharteredmf.com is a good reference point to further your understanding of bond funds. The FAQ section on the SEBI Web site (www.sebi.gov.in), which has been recently updated, should answer many of your questions about how mutual funds are regulated, how NAVs are calculated and so on.

A range of sophisticated metrics are available to assess mutual fund performance ranging from simple return measures to sophisticated measures that isolate the value added by the fund manager. You need not necessarily delve into all of them to be able to select good funds for your portfolio.

We have found that selecting funds based on a five-year performance record works quite well in the Indian context. This involves a simple evaluation of a fund's returns, relative to its benchmark and its peers, over a five-year period. Diversified equity funds that consistently beat their benchmark through a market cycle, should be good candidates for your portfolio.

A run-through of a fund's latest fact sheet will often give you useful information about its positioning on the risk scale, track record, its load and expense structure and measures such as portfolio turnover, which can help you gauge how the fund is managed.

If you want to delve deeper and have an aptitude for numbers, we suggest you download the historical NAV data for the funds you are interested in, from their Websites. For gauging the consistency of returns, you can evaluate the number of months in which a fund has outperformed its benchmark. You can use parameters such as standard deviation to measure volatility of returns; as a proxy for risk.

Websites such as www.mutualfundsindia.com,www.valueresearchonline.com and www.navindia.com, which offer NAV as well as portfolio data on funds, should aid you in this process.

Mere number-crunching may not be enough. Read the pithily written articles in the "investing" section of www.fool.com, for insights on which numbers you should ignore while analysing fund performance. The investor publications section of www.sec.gov also has good reading material on evaluating fund performance.

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859-860, Anna Salai, Chennai 600002.)

Aarati Krishnan

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