A. For building a MF portfolio, an investor needs to focus on the following parameters:-
1. TENURE
•How long do I want to stay invested?
•Each financial goal has a different tenure.
•Short term – Debt funds - < 1 year
•Medium term – Balanced funds, FMPs - > 1 to <3 years
•Long term – Equity funds - > 3 years
•How long do I want to stay invested?
•Each financial goal has a different tenure.
•Short term – Debt funds - < 1 year
•Medium term – Balanced funds, FMPs - > 1 to <3 years
•Long term – Equity funds - > 3 years
2. ASSET ALLOCATION
•How do I want to split my investment?
•Choose those that suit your desired asset allocation.
•Heavy in equity – Diversified, ELSS, Mid-cap, Sectoral funds
•Heavy in debt – Debt funds, FMPs
•Mix of both – Balanced funds, MIPs
•How do I want to split my investment?
•Choose those that suit your desired asset allocation.
•Heavy in equity – Diversified, ELSS, Mid-cap, Sectoral funds
•Heavy in debt – Debt funds, FMPs
•Mix of both – Balanced funds, MIPs
3. RISK PROFILE
•How much risk can I take?
•The funds in your portfolio must match your risk appetite.
Very Low risk – Short-term Debt funds, Arbitrage funds
Low risk – Capital Protection funds, Income plans
Low to Moderate risk – Debt-oriented Hybrid funds, MIPs
Moderate risk – Equity-oriented Hybrid (balanced) funds
High risk – Large-cap funds, Multi-cap funds
Very high risk – Small and Mid-cap funds, Sectoral funds, Thematic funds
•How much risk can I take?
•The funds in your portfolio must match your risk appetite.
Very Low risk – Short-term Debt funds, Arbitrage funds
Low risk – Capital Protection funds, Income plans
Low to Moderate risk – Debt-oriented Hybrid funds, MIPs
Moderate risk – Equity-oriented Hybrid (balanced) funds
High risk – Large-cap funds, Multi-cap funds
Very high risk – Small and Mid-cap funds, Sectoral funds, Thematic funds
4. TAXABILITY
•Which tax breaks do I want?
•Choose ones that are the most tax-efficient for you.
•Low tax – Debt funds
•No tax – Equity funds > 1 year
•Tax exemption on both investment and income – ELSS funds
•Which tax breaks do I want?
•Choose ones that are the most tax-efficient for you.
•Low tax – Debt funds
•No tax – Equity funds > 1 year
•Tax exemption on both investment and income – ELSS funds
5. LIQUIDITY
•Would I need money at short notice?
•Choose funds that meet your cash-flow needs.
•If required at short notice – Liquid funds
•If not required immediately – Equity funds
•Would I need money at short notice?
•Choose funds that meet your cash-flow needs.
•If required at short notice – Liquid funds
•If not required immediately – Equity funds
B. For picking an equity mutual fund, an investor needs to consider the following factors:-
1. Make sure you understand where you need to have a view and where the fund manager can do it for you.
2. Do not mix up market timing and asset allocation while making your fund selection decision.
3. Choose a fund through peer ranking, by using its performance ranking across time periods like year-on-year, etc., preferably from within the top 25% of a specific fund type.
4. As no single fund stays in the top quartile at all times, check how soon the fund bounced back after slipping, and it should continue to stay in the top 50% for over a year.
5. In your yearly review, knock out the fund if it slipped for four consecutive quarters in its ranking, as the fund manager cannot correct such downfall soon enough.
2. Do not mix up market timing and asset allocation while making your fund selection decision.
3. Choose a fund through peer ranking, by using its performance ranking across time periods like year-on-year, etc., preferably from within the top 25% of a specific fund type.
4. As no single fund stays in the top quartile at all times, check how soon the fund bounced back after slipping, and it should continue to stay in the top 50% for over a year.
5. In your yearly review, knock out the fund if it slipped for four consecutive quarters in its ranking, as the fund manager cannot correct such downfall soon enough.
C. Ensure the following:-
1. Your chosen funds should clearly say where it will invest and how, without being too restrictive in its objectives.
2. The fund should also demonstrate the ability to stay honest to its objectives and strategies which should not be vague.
3. The fund house should also have an investment philosophy that covers most of its products, and ensure that the fund managers are different for diametrically opposite approaches.
4. You should buy a specified, comparable, competitive product that is managed transparently.
5. Review annually, rebalance periodically and replace laggards.
1. Your chosen funds should clearly say where it will invest and how, without being too restrictive in its objectives.
2. The fund should also demonstrate the ability to stay honest to its objectives and strategies which should not be vague.
3. The fund house should also have an investment philosophy that covers most of its products, and ensure that the fund managers are different for diametrically opposite approaches.
4. You should buy a specified, comparable, competitive product that is managed transparently.
5. Review annually, rebalance periodically and replace laggards.