Renu Pothen Fundsupermart.

com Many investors who wish to take an exposure into mutual funds for the first time, either glance through some online portals or participate in shows organized by TV channels wherein they can post their queries to experts in the domain. In the former case, investors blindly select five star rated funds in their portfolio without thinking about the reason for them entering the mutual funds space. On the other hand, the standard reply from the think tanks would be: As you are a first-time investor you can either invest into large cap or balanced funds. This advice is generally given on the assumption that both these categories of funds will give some comfort to nave investors who have not yet experienced the vagaries of markets. However, in both these cases, investors are usually left in the lurch as they have no clue about the next step to be followed as far as their portfolio construction is concerned. Recently, the Securities and Exchange Board of India (SEBI) came out with a diktat that clients should complete a risk profiling exercise before taking investment decisions. A risk profiler, as I have previously mentioned in one of my articles on Moneycontrol.com, covers aspects like the age of the investor, their investment objectives, time horizon, existing investments, income and liabilities and ability to take risks. Here, investors need to remember that the outcome of this exercise will be to throw some light on their risk-taking ability which will be essential while investing in mutual funds. In such a scenario, I would like to jot down three main factors which investors need to take into account before entering into the mutual funds arena: Existing Asset Allocation Although an investor might be making his first investments into mutual funds, he would have had exposure to other instruments like direct equities, fixed deposits, Public Provident Fund (PPF), insurance, etc. Hence, investors should be clear about the amount of savings that they want to allocate to mutual funds and accordingly plan the asset allocation. Most of our investors tend to have a good exposure into savings instruments like fixed deposits and insurance but dread equities as an asset class. For these investors, parking some amount of surplus into equity mutual funds will be beneficial in the long run. On the other hand, if the investor has no exposure to the much-coveted yellow metal then a 5% to 10% allocation can be made into this asset class via the Exchange Traded Fund (ETF) route or through Fund of Funds (FoF). Investment Goal: Investors should select appropriate funds depending on the goals for which these investments are being made. For instance, if the investor is planning to build a corpus for his childs education, then maximum exposure should be taken to equity funds. An investment into the same for a long time period will help him achieve the desired goal. On the other hand, if the investor wishes to purchase a home in the next one year then parking his entire surplus into equity funds will only invite trouble. In short, investors should take be aware of their short and long term goals and accordingly plan their investments. Time Horizon: An important component that needs to be taken into consideration is the time horizon for which the investments need to be held. Here, I am referring to a case wherein an investor has a surplus to

invest for a 5 year time period, and accordingly should not be choosing just fixed income funds for this requirement. I have always maintained a stance that fixed income investments should be actively managed depending on the views on interest rates while the surplus parked in equity funds should be given time to grow over a long time span. I am of the view that if investors have taken these factors into consideration then they should go about the next step of selecting the appropriate funds in their portfolio. At this stage, I would advise investors to select the categories of funds depending on their risk profile and also consider the following factors so that appropriate investment decisions can be made.

Pedigree of the fund house Track record of the fund manager Performance of the fund during different market cycles Expense ratio of the fund To conclude, investor responsibility doesnt end with creating a portfolio, but also extends to reviewing it on a regular basis. The author is a Research Head at Fundsupermart.com India
First time investors in Mutual Funds act in the face of imperfect information and often get overwhelmed by uncertainties characterizing the investment situation. But theres more to Mutual Fund investing than market timing. First things first.. The first thing an aspiring unit holder must do is to establish what type of portfolio he wants to build. In other words, to decide the right asset allocation. Asset allocation is a method that determines how you invest your money in different investments with the proper mix of various asset classes. Remember, the type or class of security you own i.e. equity, debt or money market, is much more important than the particular security itself. The popular thumb rule for asset allocation says that whatever the investor s age, he should keep that percentage of his portfolio in debt instruments. For example, if an investor is 25, he should have 25% of his investments in debt instruments and the rest in equity. However, in reality, different circumstances and financial position for each individual may require different allocation. Portfolio variable is another factor that one needs to understand to practice asset allocation. These are age, occupation, number of dependants in the family. Usually the younger you are, the more riskier the investments you can hold for getting superior returns. How to pick the right fund/s? Next, focus on selecting the right fund/s. The key is to select the fund/s based on their investment philosophy and consistency in terms of returns. To ensure you are selecting the right type of funds that are appropriate for your needs, consider following: Determine what your financial goals are. Are you investing for retirement? A childs education? Or for current income? Consider your time frame. Do you need money in three months time or three years? The longer your time horizon, the more risk you may be able to take. How do you feel about risk? Are you in a position to tolerate the ups and downs of the stock market for the possibility of higher returns? It is necessary to know your own risk tolerance. It can be a guide for choosing the right schemes. Remember, regardless of the potential returns, if you are not comfortable with a particular asset class, you should consider other options. Fund Candy Diversified equity funds Index funds Opportunity funds Mid-cap funds Equity-linked savings schemes Sector funds like Auto, Health Care, FMCG, IT, Banking etc. Balanced funds for those who are not comfortable with 100% exposure to equity If selected properly, these equity and equity-oriented funds have the potential to deliver returns that could be far superior to other asset classes. Remember, all these factors will have a direct impact on the fund you choose and the return that you can expect to get. If you are a long-term investor with some appetite for risk and are looking for returns to beat inflation, equity funds are your best bet. MFs offer a variety of equity and equity-oriented schemes (See table Fund Candy). For a beginner, it makes sense to begin with a diversified fund and gradually have some exposure to sector and specialty funds. Investment Strategies that will help you make the best of your MF Investment and Traps that you should avoid. Keeping track.. Filling up an application form and writing out a cheque is not the end of the story. It is equally important to keep an eye on how your investments are performing. While having a qualified and professional advisor helps both in terms of making the right decision as well as measuring performance, it makes sense to know how to do yourself with a little help from these sources: Fact sheets and Newsletters: MFs publish monthly fact sheets and quarterly newsletters that contain portfolio information, a report from the fund manager and performance statistics on the schemes managed by it. Websites: MF web sites provide performance statistics, daily

NAVs, fund fact sheets, quarterly newsletters and press clippings etc. Besides, the Association of Mutual funds in India, AMFI, website, contains daily and historical NAVs, and other scheme. Newspapers: Newspapers have pages reporting the net asset values and the sales and redemption prices of MF schemes besides other analysis and reports. Remember, it is very important for you to be well informed. To achieve this, you need to spend a little time to understand and analyze the information to enhance the chances of success. Even if you spend one percent of the time that you spend on earning money, itll be a good beginning. Above all, take help of a professional advisor to select the right fund as well as the right mix of one time investment, SIP and the STP. The author is Hemant Rustagi CEO, Wiseinvest Advisors Pvt. Ltd. Read more at: http://www.moneycontrol.com/news/mf-experts/new-to-mutual-funds-tipsforbeginner_168248.html?utm_source=ref_article

Tips to choose the right mutual fund

http://profit.ndtv.com/news/your-money/article-tips-to-choose-the-right-mutual-fund-323201 Saving and investing for future financial security is a top priority for every individual. For many of us, increasingly busy lifestyle and lack of knowledge prove to be a hindrance in choosing the right investment product. Mutual funds offer professional investment management for such individuals at an affordable cost. However, it is important that we analyze the following factors before choosing a mutual fund investment.

1. Goal associated with the investment: We make investments to ensure that our savings enhance our ability to reach our goals. The investment should be in sync with the tenure of the goal. If you have a short tenure, picking debt funds is a good option. For investors with medium tenure, balance funds which have exposure to both debt and equity are a good option. Long term investors can opt for more exposure to equity. 2. Know where your money is being invested: Mutual funds pool investors' money to make investments across different securities as per a predefined investment strategy. A mutual fund in itself is a portfolio managed by professionals on behalf of the subscribed individuals. It is an advisable practice for investors to understand the investment objective of the mutual fund and know the securities in which the investment will be made. Investors should also know the stated benchmark of the mutual fund. This can help them compare the performance of the selected fund among the peers. This will also provide insights on the expected return and corresponding risk of the investment. 3. Risk and return associated with the investment: Risk and return are an integral part of every investment. Balancing these factors would help individuals maximize their returns by taking calculated risks. In order to do so, it is important that the individuals analyze their risk tolerance. Risk tolerance in simple terms can be stated as the willingness of the individual to accept the price swings of investment. Ideally, the risk tolerance/risk appetite of the individual should be in sync with the risk-return tradeoff of the mutual fund. Diversification also helps them arrive at a suitable risk-return tradeoff. Based on the past performance of the fund, investors can gauge the mean return and risk associated with it.

4. Mutual fund fees, charges and net return: In lieu of services provided, mutual fund houses charge a fee on the investments. The fees are classified as exit load and expense ratio. These fees have a major say in determining the net return on the investment. Mutual funds charge an exit load on investments which are redeemed before a stipulated timeframe. Before investing in mutual funds, investors should know the time frame till which exit load is charged. This time frame should be less than the time frame of goal for which the investment is being made. Expense ratio is the recurring fee charged by asset management companies for managing the investments. The expense ratio varies from 0.5 per cent to 2.5 per cent based on the nature of the fund and investment style. Since the expenses are deducted from the earnings of the fund, it lowers the effective return of an investment. For example, if a mutual fund has a stated return of 10 per cent and an expense ratio of 2.25 per cent, the net return of the investment is 7.75 per cent. With all factors equal, it is advisable to opt for mutual funds with lower expense ratio. ArthaYantra.com provides personal financial advice online.