Markets
BSE See NSE See 39,599.19
164.25 (0.42%)
collapse Related Readings collapse

What drives your mutual fund portfolio?

| 8/29/2011 2:23 PM Monday

Mutual funds have the potential to fulfill a wide variety of investor needs, risk preferences and investment objectives. However, it is important that selections are made after ascertaining the kind of asset allocation that would suit one’s requirements and time horizon. While this process can be a little tricky, considering that one must know how different asset classes co-relate with one another, as well as how to select suitable schemes out of the options on offer in different categories, the right combination of schemes in a portfolio can do wonders for achieving the desired results. Apart from the suitability, it is equally important to opt for funds that have been consistent, in terms of following their investment strategy as well as their performance. Therefore, it pays to spend time in putting together an effective portfolio.

As is evident, the selection process plays a significant role in the level of success one can achieve from one’s mutual fund portfolio. However, inspite of taking all precautions, one may still have to face situations wherein even the most consistently performing funds may become erratic during certain periods. While at times, this may happen due to an error of judgment on the fund manager’s part, investors must know that often such a situation may arise because of the market behaviour. Hence, it may not be wise to abandon the fund in a hurry.

Remember that if a fund loses ground in a falling market and falls in line with its benchmark index, it should not be much cause for concern. On the other hand, if a fund goes down when its peers are yielding positive returns, this should be taken as a warning signal. This is why the key to measuring performance is to compare a fund with its peer group. For example, while analysing the consistency of a fund that invests in a particular segment of the market, i.e. a mid-cap fund, one needs to consider the level of volatility that the segment itself may be witnessing. However, the skills of the fund manager and the fund’s investment philosophy can ensure that the fund stays less volatile.

Once investments are made, monitoring the performance on an on-going basis becomes essential to ensuring success. At the same time, having made a decision based on thorough research, one needs to give the fund manager enough time for the fund to perform. However, once it is proven that the fund’s performance is slipping, one should not hesitate in getting rid of it. By getting rid of non-performing funds and re-investing the money in schemes that have a better quality portfolio and track record, one can enhance the chances of improving returns over time. Don’t forget, getting emotional about non-performing investments or waiting endlessly in the hope of recovering losses can be a fruitless exercise.

An appropriate level of diversification in the portfolio is another aspect that requires attention. Diversification does not always mean owning 10 schemes or so. To determine the right level of diversification, one has to consider factors like risk profile, portfolio size, type of funds and allocation to different asset classes. It is critical to pay attention to the level of risk one is willing to take to meet one’s expectation of returns.

Risk tolerance should also be addressed from two perspectives: financial risk tolerance and emotional risk tolerance. Investment professionals often define risk as volatility; in other words, how much one’s investments will rise or fall in a given period. Individuals usually define risk as the potential to lose money or not meet their goals. Every equity fund investor must know how comfortable he/she will be if the portfolio goes down 5 per cent, 10 per cent or 20 per cent for a certain time period. It is equally important to know as to how long can one hold on to failing investments – three months, one year or three years.

Long-term investors can handle volatility in a much better manner as they have time on their side – time to let aberrations in the market work themselves out. Similarly, each time the stock market is in short-term disarray, long-term investors can benefit from the buying opportunities it presents.

 

Find More Articles on: DSIJ Magazine, In Focus, Personal Finance, Mutual Funds

news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »

DSIJ Mindshare

Ducon Infra partners with Sterling & Wilson to bid for large GFD projects

Apurva Joshi / Article rating: 5.0

Ducon Infratechnologies Limited has entered into a strategic tie-up with Sterling & Wilson Private Limited, a flagship group company of Shapoorji Pallonji Group, to jointly bid large-sized FGD tenders. Ducon is an emerging technology company providing solutions in the industrial, infrastructure and digital space to multiple business segments across varied industries.

12345678910Last

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Logistics sector will play a vital role in making the concept of ‘Make in India’ a success. This will be further aided by some of the recent steps taken by Government of India such as granting of infra sector status to logistics sector.

Best and worst Performing Sector Funds of Year 2017

Best and worst Performing Sector Funds of Year 2017

As the year-end has approached most of you are eager to know the mutual fund movers and shakers of the year 2017. Read on to find the performance of various sector dedicated funds.

Markets may start positive, but volatility likely due to F&O expiry

Markets may start positive, but volatility likely due to F&O expiry

The start of the F&O expiry day is likely to be in the green, but volatility may creep in with the progress of the session. The SGX Nifty suggests that the Nifty could open at 10,525 with gains of 32 points at the opening bell. 

Pidilite announces buyback of Rs 500 crore

Pidilite announces buyback of Rs 500 crore

The buyback offer comprises purchase of up to 50,00,000 equity shares. The buyback offer size comprises 0.975 per cent of the total paid-up equity capital of the company.

Bank Nifty drags markets to close in the red

Bank Nifty drags markets to close in the red

The late session fall in Bank Nifty changed the direction of the market, leading to a marginal fall in the benchmark indices. Bank Nifty yet again resisted at its multiple point downward sloping trendline level at 25733.

Six major underperforming MF schemes having higher expense ratios

Six major underperforming MF schemes having higher expense ratios

Mutual funds with a large size of assets under management (AUMs) are supposed to have lower expense ratios. However, there are schemes with large AUMs but having higher expense ratios and generating lower returns. 

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma index has come in as the healer in an otherwise sluggish market. Index has given a consolidation breakout at the 9420 level today and if the it sustains 9420, followed by 9628 on the upside, it has a long way to go.

Ten stocks close to their 52-week low

Ten stocks close to their 52-week low

Following stocks are close to their 52-week low as at 12.35 p.m. on December 27.

Ten stocks close to their 52-week high

Ten stocks close to their 52-week high

The markets on December 27 opened gap down. BSE Sensex is trading at 34,068.15, up by 57.54 points and the Nifty is trading at 10,539.45, up by 7.95 points.

Five stocks with selling interest

Five stocks with selling interest

Overall volumes in futures & options currently stand at 62.75 lakh contracts with a turnover of Rs. 5,19,204.72 crore.