Like the US market, passive fund has outperformed in India in comparison to other emerging market. Direct investment in equities is riskier as valuation of the market is sky high and a possible correction is awaited. It is the perfect time to take steps to safeguard your hard-earned money against the correction and rewire your portfolios from the small and mid-cap stocks to large cap mutual funds. The mutual fund is the best option to date to invest for long-term goals as it has several advantages which includes lower cost of investing, very liquid, higher safety in comparison to other products and also tax-efficient. It is highly operational transparent and user friendly. On the other hand, mutual funds generate consistently return over long-run. A mutual fund is also diversified investor’s money into a different asset class.
Criteria for selecting MFs
One should evaluate the performance of an active fund in line with the index fund having due care the fund long-term track record as well its AMC and consistent returns of that fund at least 5 to 10 years. The investor would prefer to invest in the lowest risk fund with the same expected return in a specific time frame in two funds. The investor would prefer the higher expected return in portfolios of two funds with the same risk. Do not forget to analyse the risk factors such as: standard deviation, beta, alpha, sharp ratio, Treynor ratio, and concentration ratio of a fund.
Mohapatra, Additional GM-Finance, IRCON and an author.