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What Is The Right Mutual Fund For You

What Is The Right Mutual Fund For You?

by Holistic Leave a Comment | Filed Under: Mutual Funds

If you are planning to invest your money in equity funds, there are plenty of options in front of you. Broadly the equity funds can be categorized into index funds, diversified funds and sectoral or thematic funds.

Your friend could have told you index funds are safe and cost effective. Your colleague could have told you, infrastructure is going to be the next big theme. So invest in infra funds. As an investor you are confused with the information overload and would like to choose the right type of fund for you. I will unveil this to you today.

Index funds Vs Diversified Funds

Index funds are just index trackers. They aim to replicate the movements of an index. Index funds will hold all of the securities in the index in the same proportion as the index. There is no research and analysis on which stock to invest. There is no human input. They just track and replicate the index. There is no active management and there is no fund manager. So they enjoy the low cost advantage.

On the other hand, diversified equity funds will invest in non-index stocks also. The fund manager and his team will do an in-depth research before investing in each and every share. The aim of the fund manager is to outperform the index. Most of the diversified funds have outperformed the index with a huge margin. As these funds are actively managed, the expense ratio of these funds is relatively higher. But you are well compensated for the extra fees you pay. The returns you see in the above table are the net returns after adjusting all the expenses.

If that is so, then how come the concept of the index fund is so popular and accepted? In the developed countries, matured markets, grown up economy it is REALLY difficult to beat the index. So the extra expense on the active management will reduce the return. So index funds are better and popular there.

But in a country like India, where the economy is fast growing, market is still not matured and the country is in the transition phase of moving from a developing country to a developed country there are lot of better opportunities with the non-index stocks. That is why in all emerging markets including India, it is possible for the fund managers to outperform the index.

So, diversified equity funds in the long run (5 years and above) will outperform the index funds in all the emerging markets like India. That is why you need to choose diversified equity funds when compared to index funds.

Diversified Funds Vs Sectoral/Thematic Funds:

Sectoral fund invests in a particular sector. There could be a “Pharma Fund” which invests only in the pharmaceuticals sector. You can also see the funds like banking fund, IT sector fund, FMCG fund. The performances of these funds are restricted to the opportunities available in those particular sectors.

Thematic fund invests based on a particular theme. There could be an infrastructure fund which invests only in infrastructure based stocks. There are thematic funds available in the other themes like CAPEX opportunities, energy opportunities, rural India, PSU opportunities. The performances of these funds are based on the success of those themes. Thematic funds can invest only in those sectors favoured by its theme.

On the other hand, the diversified equity funds can invest across various sectors and they can follow many themes. There is no restriction. The fund manager can invest a sizable portion in any particular sector or any theme if he thinks that sector/theme can do better in the future. Also he can move from one sector to the other sector and change his theme intermittently based on the changes in the market outlook.

This flexibility of moving from one sector/theme to the other sector/theme is not available with sectoral/thematic funds. Even if the fund manager of the sectoral/thematic fund thinks that, this particular sector/theme will not do well for the next couple of years, he is forced to remain invested in the same sector/theme. Whereas the diversified fund manager can change to another sector/theme if the outlook for a sector/theme changes.

Most often, the market creates hype on a particular sector or theme. Then investors get a feeling that this is going to be the next big sector/theme which is going to drive the market. This is only an illusion.

“Technology is the next big sector” – This is the hype created by the market in the year 1999. Everyone around you could have talked about technology stocks. Mutual funds have launched so many technology sector funds like ecom funds, internet opportunities funds. Most of the investors believed this illusion as real and invested their hard earned money in these funds. Technology sector as a whole has got crashed during the year 2000 and all the technology funds have taken years to recover from their losses. But the diversified equity funds which had sizable exposure in technology stocks have revived faster than the standalone technology funds.

“Infrastructure is the next big theme”- This is the hype created by the market in the year 2007. Everyone around you could have talked about infrastructure stocks. Most of the mutual fund houses launched schemes based on the infrastructure theme. Market crashed in 2008 and infrastructure stocks were the worst affected. Investors learned that, the prospect which they have perceived for infrastructure in 2007 was only an illusion.

Sectoral/thematic funds are potential to deliver superior returns, but it is almost impossible to predict when they will do so. Also there is an inherent danger of getting inferior returns. But market will play with your greed and make you believe the illusion as true and take action. Beware.

So it is better to leave the choice to the fund manager regarding in which sector/theme to invest. He knows when to invest in a particular sector /theme and when to move out of a particular sector or theme.

Therefore, east or west the diversified funds are safe and best.

If you have any comments or questions, write them in the comment box below.

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Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
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Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
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Sridhar
8. September, 2021.
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Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
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6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
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Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
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Nellai B
26. June, 2021.
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