Page 37 - Seniors Today - Oct 2019

Management Team (including Fund Ensure that there is no material overlapping
Manager)
Avoid AMCs undergoing any major corporate
restructuring or witnessing major staff
turnover, especially for critical positions.
Always prefer funds from stable management.
Avoid AMCs where only a couple of funds
are performing well and are managed by a
sole star fund manager. As seen often in past,
performance of funds suffer with the exit of
such star fund managers.
Consistent Performance
It is important to check the performance of the
fund over a period of three years, five years and
a since-inception basis. It will highlight the
funds’ performance across different phases of
the market. A consistent performance over the
long term is preferred to funds generating short-
term returns in spurts.
Size of the Fund / Assets Under Management
(AUM)
Avoid smaller funds, especially in case of debt
funds with AUM less than INR 500 crores. The
exit of any big investor out of such MF scheme
may impact its overall performance.
Avoid funds with very high AUM, especially if
they are not in the large cap category.
Portfolio Composition & Diversification
A reliable fund manager is essential to avoid getting
confused
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of stocks & sectoral allocation between
multiple funds that forms part of an investor’s
portfolio. Overlapping will not help in adequate
diversification, in spite of investing in more than
one fund offered by different AMCs.
Expense Ratios
Expense ratios should be closer to the median
averages rather than extreme ends of the
range. Similarly, expense ratios should show a
declining trend as the asset size increases.
Ongoing Review of Portfolio
Just like physical fitness needs continues
evaluation of the body, similarly it is extremely
important to review your MF portfolio at
defined intervals (ideally on a quarterly basis).
This is perhaps one of the most neglected
activities in the journey of wealth creation
and hence does not lead to desired results. An
investor should actively review the MF portfolio
at defined intervals to reconfirm that the thesis
basis which the original investment was made
holds good. If there is material change to the
thesis and it remains consistent over a period of
time (say 3-4 quarters), one should evaluate to
exit the MF scheme. If the thesis remains intact
and yet the fund underperforms over couple of
quarters, one should stay put.
Role of Advisor
One of the most common reasons for
inadequate due-diligence of funds at the time
of MF selection or review of portfolio is lack
of time / activity being a non-core activity
for the investor’s routine. In such a case, it is
recommended to connect with a good advisor
who clearly understands the true meaning
of wealth creation. In one of the analysis
conducted by Vanguard, the world’s largest
asset managers, it was found that an advisor
managed portfolio can add about 3% annual
returns to the client’s overall portfolio. An
advisor, who follows an uncomplicated and
transparent approach of investing along the
lines narrated above, can immensely contribute
in your story of riches and fortune.
Happy Investing!
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