Mutual fund investors should take help from the experts to make the most of their investment. But these professionals should be capable of taking a need based approach while suggesting.
Study of past performances of investment in equity mutual fund show that there are numerous qualitative and quantitative factors which govern the selection of best possible mutual fund investment. Each investor aims to buy the mutual fund which will give him/her the best performance that is, to ‘buy low and sell high’. To achieve this one needs help of professional money managers or mutual fund managers who understand the dynamics of business.
Process followed by financial planners:
• Making a financial plan for the client – understanding cash inflows and outflows, goals and needs
• Broad classification of client as conservative, moderate or aggressive
• Recommendation of suitable funds – based on qualitative and quantitative factors.
Quantitative Factors:
Fund manager’s investment process
Service quality
Investor communication
Stability of the fund management team
AMC’s cumulative research and fund management experience
Qualitative Factors:
Risk-adjusted returns
Sharpe ratio
Beta
Returns over various periods of time
Composition of the portfolio
Final recommendation is done by adding together the qualitative and quantitative parameters. Usually any fund, which has a corpus below Rs 400 crore and less than a year’s track record, is not usually recommended. The few funds which are favoured with fund managers are HDFC Equity, ICICI Prudential Discovery, HDFC Top 200, UTI Dividend Yield and UTI Equity Fund. Among largecap funds, are HDFC Top 20, DSP Blackrock Top 100, Birla Sunlife Frontline Equity and ICICI Prudential Focused fund.
All decisions taken by a fund manager are reflected in the net asset value (NAV) of a scheme. While selecting a fund a wealth manager looks at NAVs on a daily basis and compare them with their peers over a one-year period. Funds are recommended on the basis of philosophy, discipline and predictability of the performance. Stability is the key to one’s financial investment goals. The equity funds that have recommendations of managers are HDFC Top 200, DSP Blackrock Top 100 and ICICI Prudential Dynamic Fund (in large-cap category). Among mid-cap funds, Birla Midcap and Reliance Growth Fund have been given preference.
Qualitative factors are given a higher weightage than quantitative factors while recommending funds. Though qualitative factors such as investment process, service quality and communication with the investors are strictly not measurable, quantitative performance of mutual fund are. So, ultimately it is quality that counts to make most from investment of funds.
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Tags: BALANCED FUND, BEST INVESTMENT, EQUITY FUND, HIGHEST RETURNS, MUTUAL FUND, QUALITY FUND