Skip to main content

Why mutual funds fail to deliver -4 highly ignored reasons

 Investing based on past performance
This is the primary method for selecting a mutual fund. We look at the past performance of the fund and then choose to invest in it. Nothing wrong with that but, how long is the past that you check? There are multiple funds which have performed for 3-6 months but failed later. Consistency is what matters here. You should ideally be checking the 3 year and 5 year performances of the fund rather than for 6 months. It would tell you if the fund was able to tide over various market cycles and interest rates. The top funds have been those which withstand the downside and then performed when the time arrived. Giving time for performance of the fund is very essential especially for equity funds which usually fail in short term but have potential to perform in the long term.

You may have chosen the right fund with a great track record. However, one thing which is always uncertain is the market. The market here includes stock market in case of equity funds as well as interest rate market for debt funds. If you have been into investing, you might understand this better. You must have seen recession, interest rate hikes, etc. All of these dent your mutual fund investment. Even the best of best funds have taken a hit in tough times. Some of them have recovered as there was value in those funds. One thing which you should always avoid is timing the markets. The more you try to time it, the more you lose. Of course, losing or winning in mutual funds depends on the fund managers timing the markets. It's their job to do so. If you believe that you have got the fundamentals right in picking a fund, you should not worry about short term ups and downs of the market. Have patience.
Fund Manager
This could be the significant reason behind failure of the fund. A fund manager is the backbone of a fund. He/she is responsible for the fund's success or failure. Stock picking, timing the markets, predicting the interest rate movement, etc. are usually handled by the fund manager. Usually, the best funds have been those where it had great fund managers who performed consistently for it. Frequent change of fund managers may be a danger signal for you. Though it is difficult for a common man to monitor the fund manager's performance, it could be worth having a glance at the past performance and credibility of the fund manager.
Size of fund
Some call it AUM (Assets Under Management), some call it size. It is the amount that a fund manages. Does it matter to you how much corpus a fund manages? It may not affect you much. But, if you are looking to redeem a fund within few months of investing, a small sized fund may or may not allow you to do it. There have been cases where funds have had liquidity crunch and investors had to wait to redeem units. This may not happen in a large sized fund as lots of money flows into them.


Popular posts from this blog

Future of oil is bleak. By 2030, 95% of people may not own private cars which would wipe off the automobile industry

A futurist and clean energy expert, Toni Seba, has predicted that electric vehicles would destroy the global oil industry after a decade. By 2030, 95% of people won't own private cars which would wipe off the automobile industry, he says.

Boeing and JetBlue Airways have announced they would begin selling a hybrid-electric commuter aircraft by 2022. Planned by start-up Zunum Aero, the small plane would seat up to 12 passengers and reduce travel time and cost of trips under 1,600 km.


Can Herbalife 'Afresh' cause insomnia(sleeplessness) and heart problems?

Here is another "great" product from Herbalife. Marketed as an ENERGY drink mix. Few people know it contains Gurana seeds which have no active compound giving artificial energy other than caffeine. Afresh also contains additional caffeine

Ingredients of Herbalife Afresh Energy Drink Mix:
Maltodextrin, Orange Pekoe Extract, Guarana Seed Extract, Acidity Regulator - 330 and Caffeine Powder.

Side effect include insomnia, sleeplessness and heart problems, It is especially harmful for people with High blood pressure.

PPF interest rate cut to 7.9% but are other investment options better? Here's a comparison

The Public Provident Fund (PPF) will now offer 7.9% but experts say it is still a good option for investors. Given that consumer inflation is down to 3.65%, the real rate of return of the PPF is a healthy 4.25%. 

"This is quite impressive for an option that offers assured returns," says Amol Joshi, Founder, PlanRupee Investment Service. "Investors should continue to take advantage of this long-term tax-free product," he adds. 

Even if you compare the PPF rate with the 10-year government bond yield, the scheme is attractive. "The 10-year bond yield is a better benchmark for PPF than consumer inflation," says Manoj Nagpal, CEO, Outlook Asia Capital
Currently, the 10-year bond yield is around 6.8% and the PPF at 7.9% makes it for a premium of 110 basis points. "Historically, the average premium has been around 75 bps. So, the PPF investor is today earning a higher real return," says Nagpal. Even so, some investors may be feeling disappointed by the cu…