Everybody thinks that equity based mutual fund is a great instrument to build wealth over a long period of time. I don't disagree with it. This is specially true for retail investors who don't have a business acumen and who don't have time to thoroughly research investment ideas. However, I have seen over the years that most of the mutual funds are not worth the money you pay them. Over a long period (>10 years) you will see that most actively managed equity funds do not outperform Sensex or Nifty Indices. If you don't trust me just check out the returns of various mutual funds over last 10 - 15 years in comparison to Bse Sensex or Nse Nifty. You can find that data readily available with Dhiren Kumar's website at http://www.valueresearchonline.com/ If you still have to invest in mutual funds it is always better to go with low cost index funds........Warren Buffet has discussed this in his letters to the shareholders of Berkshire Hathway. With their low cost and fees most index funds can give better returns than actively managed equity funds over a longer holding period (approx 10 years). Some points to keep in mind before investing in any mutual fund are :
1. Invest in a fund that has a history of 7 to 10 years and has been able to produce cumulative returns in excess of Bse Sensex or Nse Nifty over this time period.
2. Make sure that the fund has survived through atleast one bull and one bear cycle. This will give a fair idea of the funds ability to survive in bear markets.
3. Invest in funds with low management fees and expense ratios. Most actively managed funds in India have annual fees and expenses in excess of 2% of assets under management (AUM). Ideally......I would like to invest in funds with less than 2% expense ratio. Over a longer period this 0.5% or 1% you save in fees and expenses can really do wonders to your portfolio. Fees and expenses of mutual funds in USA have gone below 1%.
4. Be prepared to stay invested for atleast 5 years in a fund to get decent return if you are investing through Systematic Investment Planning (SIP) route.
5. Track whether the funds performance has been due to a particular fund manager. If the manager quits the fund may not be able to generate similar returns in future.
6. Invest in lowest cost index funds unless you find a compelling equity oriented mutual fund that has beaten Nifty or Sensex by a good margins over 7 to 10 years.
7. Check the performance of other schemes from the fund house before buying the mutual funds. Some of the good fund houses in India are Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton, etc.
Before buying any fund you can review the quality of that fund from http://www.valueresearchonline.com/ Funds with good returns and low risk are awarded 5 stars and they can be analyzed further for one's own investment purposes
If you have any questions feel free to contact me on secmoney@gmail.com
Regards,
Bargain Hunter
1. Invest in a fund that has a history of 7 to 10 years and has been able to produce cumulative returns in excess of Bse Sensex or Nse Nifty over this time period.
2. Make sure that the fund has survived through atleast one bull and one bear cycle. This will give a fair idea of the funds ability to survive in bear markets.
3. Invest in funds with low management fees and expense ratios. Most actively managed funds in India have annual fees and expenses in excess of 2% of assets under management (AUM). Ideally......I would like to invest in funds with less than 2% expense ratio. Over a longer period this 0.5% or 1% you save in fees and expenses can really do wonders to your portfolio. Fees and expenses of mutual funds in USA have gone below 1%.
4. Be prepared to stay invested for atleast 5 years in a fund to get decent return if you are investing through Systematic Investment Planning (SIP) route.
5. Track whether the funds performance has been due to a particular fund manager. If the manager quits the fund may not be able to generate similar returns in future.
6. Invest in lowest cost index funds unless you find a compelling equity oriented mutual fund that has beaten Nifty or Sensex by a good margins over 7 to 10 years.
7. Check the performance of other schemes from the fund house before buying the mutual funds. Some of the good fund houses in India are Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton, etc.
Before buying any fund you can review the quality of that fund from http://www.valueresearchonline.com/ Funds with good returns and low risk are awarded 5 stars and they can be analyzed further for one's own investment purposes
If you have any questions feel free to contact me on secmoney@gmail.com
Regards,
Bargain Hunter
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