| ign="center"> | | | | fund launched in 1995 can be compared with another |
| Few would dispute the utility that mutual funds as | | | | fund launched in 2002 over the 3-Yr and 5-Yr time |
| investment avenues can add to investors portfolios. | | | | frames. However comparing their since inception |
| Similarly, in recent times, the greater acceptance of | | | | performances would be inappropriate because the |
| mutual funds and their impressive showing in the | | | | first fund has a 13-Yr track record while the latter |
| domestic context has been chronicled in detail. There | | | | has been in existence for 6 years. A funds |
| is also a huge amount of information available on how | | | | performance since its inception can at best be |
| to invest in mutual funds and make the most of | | | | considered for drawing comparisons vis-à-vis the |
| them. Sadly, there is little being done to remove the | | | | benchmark index (i.e. by considering a corresponding |
| several misconceptions doing the rounds. Thanks to | | | | period) to evaluate its relative performance. |
| these misconceptions, investors end up making | | | | 3. Thematic funds make good investments |
| incorrect investment decisions. In this article, we | | | | This is likely to be the most disputed misconception. |
| expose 3 common mutual fund misconceptions. | | | | After all, most thematic funds have delivered |
| 1. SIP is an investment avenue | | | | superlative performances over the last 18-24 months. |
| SIP (systematic investment plan) is a buzzword of | | | | Lets not forget that just about every fund house |
| sorts in the mutual fund industry. Fund houses have | | | | worth its salt is launching thematic NFOs (new fund |
| done their bit to spread the gospel of SIP among | | | | offers) and that includes fund houses like HDFC |
| investors. Advertisement campaigns exhorting | | | | Mutual Fund which were always averse to the idea. |
| investors to invest via an SIP are common place. | | | | Clearly, the worthiness of thematic funds cannot be |
| However, many investors have been led to believe | | | | doubted. |
| that SIP is an investment avenue. It is not | | | | The fact: All the hype surrounding thematic funds |
| uncommon to find investors who want to invest in | | | | doesn't change the fact that they are high risk-high |
| an SIP fund (incidentally, there was even a mutual | | | | return investment propositions. Furthermore, such |
| fund launched with that name). | | | | funds can deliver only so long as the underlying |
| The fact: SIP is a mode of investment, not an | | | | theme does well; once the theme runs out of steam |
| investment avenue. The conventional method of | | | | (every theme does at some point in time), so does |
| mutual fund investing entails making one-time lump | | | | the fund. And given the restrictive investment |
| sum investments. SIP investing involves making | | | | mandate of a thematic fund, the fund manager has |
| regular investments in a staggered manner. By | | | | no option but to stay invested even in the |
| spreading the investments over longer time frames | | | | aforementioned scenario. |
| (at least 12-24 months), investors stand to gain by | | | | Conversely, there are diversified equity funds that |
| lowering the average purchase cost vis-à-vis lump | | | | invest in an unrestricted manner. By not being tied |
| sum investments. This is most evident when equity | | | | down to any specific theme, they are free to seek |
| markets experience prolonged bouts of turbulence. | | | | attractive investment opportunities across the |
| Also, SIP investing tends to be lighter on the wallet | | | | investment universe. Statistics reveal that over longer |
| as opposed to lump sum investing. | | | | time frames (more than 5 years) well-managed |
| 2.Since inception numbers are comparable | | | | diversified equity funds are known to score over |
| It is a common practice to evaluate equity-oriented | | | | their thematic peers. More importantly, diversified |
| funds by comparing their performances over longer | | | | equity funds are known to outscore their thematic |
| time frames like 3 years and 5 years. At times, | | | | peers on the risk parameters i.e. they expose |
| investors are known to draw conclusions based on | | | | investors to lower risk levels. |
| since inception performances. Since inception refers | | | | At best, thematic funds are suited for informed |
| to the growth clocked by a fund since its origin. | | | | investors who can time their entry into and exit from |
| The fact: Since inception performances are not | | | | the fund. Retail investors should stick to diversified |
| comparable, simply because not all funds have the | | | | equity funds with proven track records over longer |
| same inception date. For example, a diversified equity | | | | time frames and across market phases. |