Don't stop paying attention to your funds just because it's all doing badly. Keep monitoring
10-Oct-2013 •Research Desk
Paradoxically, people pay attention to investments that are doing well and also to investments that are doing badly. But they don't pay attention to investments that aren't doing much one way or the other. Unfortunately, that's the phase that equity funds have been in for a long time now. As on July 31, 2013, the five year returns of large-cap funds was 6.21 per cent per annum, that of large and mid-cap funds was 6.79 per cent, with mid- and small-caps at 7.33 per cent and multi-caps at 7.47 per cent. The total (cumulative) returns range from a negative 57 per cent to 286 per cent. If you've paid attention to fund selection, and picked a well performing fund, the returns are better. For example, the five-year average returns of all equity funds rated five or four stars by Value Research are 10.3 per cent per annum, which is a cumulative return of 63 per cent.
These are not the kind of numbers that would make you sing for joy but nor are they the kind of disastrous numbers that would make you panic and sell. All in all, if you accept that equity investing means ups and downs -- periods of waiting patiently interspersed with periods of strong gains -- then these are good returns for a lean period. Especially, when the lean period includes the abnormally volatile and now, oft quoted global financial crisis of 2008.
Therein lies the danger. As is normal in equity investing, everything is in flux all the time. Funds that were doing great may start doing badly and formerly mediocre funds may become stars. Fund managers change and AMCs get merged. Entire sectors go out of favour, as infrastructure has done. New paradigms appear and become attractive, the way international investing has. Take a look at the accompanying table, which gives an overview of the churn in equity mutual funds in times when nothing much is supposed to be happening.
The basic premise of mutual fund investing is that the investor should have minimal workload and that he is outsourcing the nitty-gritty of investing to the fund manager.
However, minimal workload doesn't mean zero workload. We owe it to ourselves to keep track of all our investments. So what are the actual actions that you must take to stay on top of things? It's quite simple, if you use the resources that Value Research provides freely.
First, maintain an updated data about your investment portfolio at Value Research Online's Portfolio Manager, which is the My Portfolio feature on the website. Take a look at it once a month and see what your investment returns have been, how much is the value of your investment. Update any SIP, dividend or any other other self-triggered transaction that may have happened. The purpose is not that you have to take some action every month, but simply to be aware of where you are and what the performance is.
Second, stay updated on what's happening in mutual fund investing using this magazine and/or Value Research Online. There's no need to obsessively read everything but as long as you glance at the headlines and read anything that may have any connection with the funds or categories or AMCs that you are invested in, spend five minutes reading it -- our articles deliver a lot of valuable information very succinctly.
And what do you do with all this awareness? We'll come to that in detail in other parts of this stroy.
This story is a part of our previous report about the need to monitor your portfolio in all times.