Your advice to investors at this point

I would urge most investors to keep away from new fund till they actually mature. Most of the time investors are tempted that here is a big opportunity and they have to participate. The investor should stay clear of relatively new fund till they are at least three-years old. Even three-years is not enough sometimes because you can have a phase when in the three-years, there could be just one phase of the market.

A fund has to go through both phases of the market; the up cycle and the down cycle for an investor to understand. How a fund does for most common investor is important to be known. It is important for a fund to be able to make money in a rising market and a fund is able to better protect money in a falling market. One can’t get to see this in just one-year, six-months, two-years time.

(Source: value research)

What is your take on AIG Indian Equity Fund?

AIG Indian Equity Fund has proved to be an average fund so far. It has declined just as much as most other equity funds and participated reasonably in the equity funds. If the investor is getting concerned about the news about AIG, I don’t think there is any concern on that front.

On a standalone basis, if the investor is evaluating the fund it is a one-year fund. It is little premature, one-year time is not enough to take a call on a fund but there is no problem in moving out. Investor can consider moving out to a proven fund with a reasonable and superior history.

(Source: value research)

Should one shift from Reliance Vision to Reliance Growth?

It will be a worthwhile switch because Reliance Growth is showing no weakness, and moving that money will not be very taxing. I do not think in past one year one will be sitting on any meaningful capital gains. So there is no penalisation, constrain in taking this decision. If market turns around in six months to one year or one and half years time then one will be much better off with Reliance Growth than Reliance Vision.

(Source: value research)

Stay Away From New Funds

At a time when almost all equity funds are giving disappointing returns, Dhirendra Kumar, CEO of Value Research tells what should a Mutual Fund investor do and gives his take on various funds. According to him, an investor should stay away from new funds till they actually mature. "The investor should stay clear of relatively new fund till they are at least three-years old."

(Source: value research)

Scheme Expenses

My mutual fund investments are mainly in equity schemes. I noticed that when the Sensex moves upwards, many times the NAV of the funds are on the decrease. My basic fear is that the fund manager's fee is eating away potential returns. I see no other reason why the NAV should fall when the Sensex is on a climb. What do you think? Should I continue with my SIP programme or terminate it?—H.P. Goyal
You are right. An equity fund's net asset value (NAV) may decrease even when the Sensex is on the rise. But you are wrong in assuming that this is result of
a high fund management fee.

There are various charges levied by the fund house. The entry and exit load depend on the period of holding and whether you invest through an agent or not. Other charges, which include the annual fund management charge (FMC) and recurring expenses, are incorporated in the daily NAV. So if you invest for a period of six months, you bear the charge for six months and not the whole year.
The mutual fund industry in India is extremely well organized, transparent and regulated. Mutual funds are not allowed to retain some profits and transfer the balance to investors (by increasing the NAV). So be assured that the funds are not over charging you and are efficiently declaring their NAVs on the basis of their daily performance.
Now let's get to why the NAV may decline when the Sensex rises. The Sensex comprises 30 large-cap stocks. So a rise in this index does not imply that all listed stocks have risen. The portfolio of the mutual fund may be totally different from the Sensex basket. It will declare its NAV purely on the basis of the performance of its own stock portfolio on that day. In the recent market crash, there were days when the mid- and small-cap indices crashed despite the Sensex gaining. Naturally, a portfolio laden with mid- and small-cap stocks would see its NAV fall on such days.
Discontinuing the systematic investment plan (SIP) is certainly not advisable. It is perhaps the best way of investing in equity oriented funds. Continue investing and do not worry about these short-term market gyrations.

(by value research)