1. Sebi has categorized and rationalized the entire gamut of mutual fund schemes.
2. Among equity schemes, it has now included Value, Contra and Focused funds independently.
3. Value funds would mainly comprise of stocks which are:-
a) undervalued with potential to deliver superior risk-adjusted return in the long-term,
b) trading at deflated price due to market exaggeration displaying lower PB & PE or higher dividend yields,
c) having hidden assets (fund's perception) that the market has not spotted yet, with potential to make a turnaround in a few years.
4. Contra funds would prefer stocks performing against the general market - vice versa of bullish or bearish - and staying long in them till the "herd mentality" reverses, with the expectation of benefits in the bargain.
5. Focused funds would be concentrated in a maximum of 30 stocks where the fund manager feels that he has better prospects of delivering above average profits and growth in a "named" specific market cap (multi, large, mid, or small) category, with lesser emphasis on their existing market prices.
6. Risk awareness would therefore be handy while investing in all of them:-
a) A Value fund may be lesser vulnerable with a lower downside, being comprised of currently out-of-favour stocks, with lesser buyer expectations, but could have a "value trap" risk where a fund manager may believe it is a good valuation pick, but its price may continue to drift lower, with anticipated turnover never happening, forcing him to bail out at a loss.
b) It may also tend to under-perform in rising markets, where investors are willing to pay a premium for future growth, since these funds won’t invest in high-growth and high-valuation stocks.
c) Also, price discovery in these stocks could take a longer time, testing the patience of the fund manager as well as the investor, at times.
7. A Contra fund would have higher risk than the conventional diversified fund, and may require "timing" of entry and exit, being invested in stocks of under-performing cyclical sectors, depending on improving (or deteriorating) prospects of their products, services and pricing power.
8. A Focused fund would now invest in a limited number of 30 stocks, mostly of higher valuations due to future growth prospects, and any setback in these companies or any below par earnings could impact their stock prices, hence the fund's NAV, considerably.
9. Overall, even for an aggressive investor, inclusion of these funds should be limited to 35% of his fund portfolio for safeguarding against volatile over-exposure and erosion.
10. The remaining portfolio should continue to comprise of diversified mutual funds belonging to the other categories, while ignoring the category of thematic / sectoral funds altogether being most risky for long-term investment.
2. Among equity schemes, it has now included Value, Contra and Focused funds independently.
3. Value funds would mainly comprise of stocks which are:-
a) undervalued with potential to deliver superior risk-adjusted return in the long-term,
b) trading at deflated price due to market exaggeration displaying lower PB & PE or higher dividend yields,
c) having hidden assets (fund's perception) that the market has not spotted yet, with potential to make a turnaround in a few years.
4. Contra funds would prefer stocks performing against the general market - vice versa of bullish or bearish - and staying long in them till the "herd mentality" reverses, with the expectation of benefits in the bargain.
5. Focused funds would be concentrated in a maximum of 30 stocks where the fund manager feels that he has better prospects of delivering above average profits and growth in a "named" specific market cap (multi, large, mid, or small) category, with lesser emphasis on their existing market prices.
6. Risk awareness would therefore be handy while investing in all of them:-
a) A Value fund may be lesser vulnerable with a lower downside, being comprised of currently out-of-favour stocks, with lesser buyer expectations, but could have a "value trap" risk where a fund manager may believe it is a good valuation pick, but its price may continue to drift lower, with anticipated turnover never happening, forcing him to bail out at a loss.
b) It may also tend to under-perform in rising markets, where investors are willing to pay a premium for future growth, since these funds won’t invest in high-growth and high-valuation stocks.
c) Also, price discovery in these stocks could take a longer time, testing the patience of the fund manager as well as the investor, at times.
7. A Contra fund would have higher risk than the conventional diversified fund, and may require "timing" of entry and exit, being invested in stocks of under-performing cyclical sectors, depending on improving (or deteriorating) prospects of their products, services and pricing power.
8. A Focused fund would now invest in a limited number of 30 stocks, mostly of higher valuations due to future growth prospects, and any setback in these companies or any below par earnings could impact their stock prices, hence the fund's NAV, considerably.
9. Overall, even for an aggressive investor, inclusion of these funds should be limited to 35% of his fund portfolio for safeguarding against volatile over-exposure and erosion.
10. The remaining portfolio should continue to comprise of diversified mutual funds belonging to the other categories, while ignoring the category of thematic / sectoral funds altogether being most risky for long-term investment.