Investing in Mutual Funds: How to Pick the Right Fund House
There are currently about 35 Fund Houses operating in India. Each Fund House represents a certain investment philosophy, history and expertise, and these do have an impact on the way in which funds offered by them are managed by the fund managers. It is therefore, worthwhile studying a Fund House to understand whether their style and philosophy is aligned with your investment objectives.
To gain a good understanding of the Fund Houses, whose funds are on Fundsupermart.com, read our Fund Houses section.
Following are some of the common parameters used to assess fund managers.
This is one of the most important parameters. You have to be sure that the fund manager whom you are going to put your money with has more or less the same financial objectives as you.
For example, if you are a conservative investor who wants a stable return to your money without too much volatility, you would do well with a fund manager with a more 'value' approach towards investing. Fund managers with a value-investing approach study the fundamentals of companies very carefully and invest in stocks only when good value can be found.
If you are a 'growth' investor who is willing to take risks in the hope of higher returns, then you would put your money with a 'growth' fund manager. Most of them would look at technicals and momentum when they invest. The fund may be a lot more volatile, with both returns and losses generally on the high side.
Although most mutual fund ads and offer documents warn you that 'past returns are not an indication of future returns', it is still nonetheless a good assessment tool.
Go to our Fund Selector and look for mutual funds with a good 5 to 10 year track record. If the mutual fund has given a stable return over this time, it is certainly a good indication of the fund manager's ability.
Awards are typically given out by professional mutual fund tracking companies. These companies have professions who look at a mutual fund's performance in many ways to determine its eligibility for an award.
If a fund manager consistently wins awards, it means that his peers are recognizing his performance as amongst the best. So you might also take that lead.
Usually, the larger the fund, the more success it has had. But size is relative. A 'feeder' fund can 'feed' into a large multi-billion dollar overseas fund. Thus, when we analyse the performance of funds, we should keep a close look-out on the performances of the mother fund. The performance of the feeder fund is likely to track closely the performance of the mother fund. In normal circumstances only the expense ratios would differ between the mother fund and the feeder fund.
Experience in sector
Fund management companies often mention that their fund managers are structured in two ways. The first way would be the fund managers as a team, whereas the second way would highlight some key fund managers. In the former, the head of the team of fund managers is very important. You can keep a look out on his experience and the sectors that he has more investment experience in. If he has a good track record, chances are he is quite well versed in the market. The performance track record of the team and the rate of turnover of members in the team are also some factors that investors can look at to assess the capability of the team of fund managers.
Past performance is no guarantee for future performance, but it is the best indication that you can have. At the end of the day, it still falls to you to do your research properly, especially into the sectors which you are thinking of investing in. In a bull market, even the worst fund manager can achieve reasonable returns. So finding the right market may be more important for 'growth' investors than finding the right fund manager.
But of course, it is best if you can find both. Check out Fundsupermart.com often. We will continually bring you analysis and news on the markets around the world and on fund managers' performances and investing styles.
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