Mutual Funds

Fund Talk

VIDYA BALA | Updated on November 12, 2011

fund talk

Since you do not track the market, mutual funds make for a better choice, though you must still track fund performance.

I am 32 years old. I am not familiar with mutual funds. I have been investing Rs 3000 a month in each of the following funds since July: HDFC Top 200, DSP Blackrock Micro Cap, and Fidelity Equity. I do not track mutual funds and the stock market. I have selected the above funds based on the advice of an agent. Can you tell me if these funds are good? I plan to stay invested in the market for at least five years, no matter how it behaves. Can I continue the same SIPs till 2017?

I am also planning to increase my SIPs by Rs 6,000 a month. Should I increase investments in the above funds or go for new ones? I get statements from these funds once a quarter. How do I get to know if the SIPs are performing well?

Mehul Pathak

The funds you hold are all good performers. However, the risk that you are willing to take, will to a large extent, determine what funds to choose. DSPBR Micro Cap, for instance, invests in companies in the small-cap market segment, which typically has a higher risk profile. Higher risks may mean higher returns or steep losses. However, mid-caps are known for perking up portfolio returns over the long term.

If you would like a mid-cap fund with lesser risk profile than DSPBR Micro Cap, go for IDFC Premier Equity. We would recommend this, since a five-year investment perspective may not be long enough for a mid-cap fund to recover and catch up on returns from a down cycle.

Specific goals

Retain the other two funds. From the additional money that you can spare, consider adding Rs 1,000 each in HDFC Top 200 and Fidelity Equity. The remaining Rs 4,000 can be invested in Quantum Long-Term Equity. We have recommended a less volatile and consistent performer. If you wish to assume risks, you can up your investment in IDFC Premier Equity instead of HDFC Top 200.

You can also consider working towards any specific goals and jack-up your savings if you feel a higher sum will be required. Simply use a future value calculator in an excel sheet or use an online calculator for this purpose.

Your monthly savings of Rs 15,000 for instance, if invested over the next five years would give Rs 12.9 lakh provided the funds deliver returns of 14 per cent annually. You can continue the SIPs, provided you track their performance and exit if there is a need. When would you have to exit? Lower returns than benchmark (given in the fact sheet) over a period of one year should worry you.

A review will also be warranted if the fund's returns are lower than peers by 5 percentage points or more. You can check for returns either in the fund's monthly fact-sheet or any of the websites that display or calculate returns for you.

Tracking performance

Mutual fund is a relatively hassle-free route to buy in to equities as they do not require you to make active calls on individual stocks. Since you do not track the markets, mutual funds make for better choice.

Having said this, you may still have to track the performance of your funds. As often repeated, past performance does not guarantee future returns. Hence, you will have to track your funds to be able to weed out the poor performers.

For this, you will have to start reading up on market activity and learn to look at the fund performance. To start with, read up on the monthly fact-sheet that all mutual funds make available. If the same is not mailed to you, you can access them from the web sites of each of the fund houses.

The fact-sheet will provide you with a summary of what happened in the equity markets over the last month and the asset management company's outlook on markets. You will also find the portfolio of stocks held by each fund and the returns generated by the schemes against their respective benchmarks.

You can register with the mutual fund registrar CAMS or Karvy to receive or view in the web, statements of your returns regularly.

Also consider maintaining an online portfolio of your funds (search for mutual fund portfolio trackers) and keep track of performance once a quarter.

Published on November 12, 2011

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