Portfolio

Selecting MF winners

SRIVIDHYA SIVAKUMAR | Updated on November 13, 2017

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Markets and volatility go hand-in-hand, but not all funds can manage the ride with panache all the time. So it is not uncommon to find funds slipping in performance after having risen to the top in earlier years or vice versa. A case in point — Principal Emerging Blue Chip Fund, a mid and small-cap focussed fund, underperformed BSE 500 by a huge margin this year.

It was among the best-performing funds in 2009, having got most of its sector and stock moves right. While it had benefited from the low valuations in late 2008 and early 2009 (it was launched in October 2008), it found itself on the wrong side of the market this year.

So the million-rupee question: how should you go about selecting funds for investments? To start with, don't look at just a year's performance. One-year performance is never the right measure because one-time wonders are always aplenty. Besides, looking at one-year performance alone can work against you because there are instances of even seasoned funds showing sudden slippage in performance. HDFC Top 200 and Fidelity Equity are examples of funds that have seen fall in rankings this year.

But even after choosing a fund based on long-term performance, you may need to periodically monitor it. Reliance Regular Savings, for example, had done exceedingly well in 2007 and 2009. But its performance has since slipped. DWS Investment Opportunity and Sundaram S.M.I.L.E too have seen a fall in performance in recent years.

A similar vigilance has to be observed while investing in sector and theme-based funds. What's worked one year needn't necessarily work the next year too. Classic examples of this are infrastructure funds, which fell from grace in no time. Unlike diversified funds, timing of investments holds the key here. Booking profits on reaching target returns is a must here. FMCG, Pharma and dividend yield funds, which have had a great three-year run, must also be seen in similar light.

So, consistency is the name of the game if you are looking for long-term wealth creation. HDFC Top 200, Quantum Long-term Equity, DSP BR Top 100 and Franklin India Blue Chip make for good long-term investments, having consistently scored across market cycles. Among funds that invest predominantly in midcaps, ICICI Pru Discovery and IDFC Premier Equity have stood the test of time.

Published on December 17, 2011

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