Pick the jewels from the crown

The number of mutual fund schemes available in the market can bewilder anybody. With multiple schemes available, the small and the new investors do not know which one to buy. Investment in mutual funds cannot be avoided because the stock markets are on a high and the Sensex is crossing one milestone after the other. In spite of claims by many experts, the big correction has not yet happened.

It is a proven fact by researchers and academicians that risk reduction due to diversification takes place with the aggregation of eight to ten securities. So, while it is a good idea to follow the cliché ‘Don’t put all your eggs in one basket’, it is prudent to restrict the number of securities you invest in. As it is, managing too many is also difficult.

The small investor can look at diversified equity schemes to begin with. While choosing a scheme to invest in, one should look at the track record of the scheme and monitor the risk adjusted returns. The sectoral schemes are best left out as these are the riskiest and merit frequent churning.

The schemes to be chosen should come from fund houses with good pedigree and a long term track record. These qualitative parameters would ensure that your money is in safe hands.

Your job is not done once you buy into a mutual fund. It is very important that you, constantly monitor your scheme’s performance. This monitoring need not be done on a day-to-day basis. It can happen on a monthly basis as well. If you intend to invest for the long term, ignore short term blips. However, if the scheme you have chosen consistently under performs its benchmark index, it time to look for greener pastures elsewhere.

Finally, watch out for a change in fund management. When fund managers change, the fund strategies also change. Watch out, give some time to the new fund manager to perform. If he does not match up to his predecessor, part ways.