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The countdown begins

While designing the new Value Research website, we got some shocking insights into investor portfolios

The countdown begins

I'd like to talk about two issues today. One, a substantially updated new version of Value Research Online, which is now undergoing final testing and fine tuning, and two, some rather interesting and somewhat surprising things I have learned about investors' fund portfolios during the course of the new website's beta testing.

Let's talk about the investing issue first. Value Research has always advocated that there is little point in fund investors investing in more than a handful of funds. This is something I have written and spoken about a number of times. Some years ago, we also did a detailed simulation of investing in different number of funds over different time periods. The ideal number, both practically and theoretically, has always turned out to be four or five. That provides the best balance between diversification and management overhead. Not just that, depending on how you choose your funds, it also has the potential of offering the highest returns.

How is that? You might ask. The reason is that with three or four funds, you have the potential to do better (if you choose good funds) or worse (if you do not choose good funds). Once you go much beyond that, say, seven-eight funds and more, your returns are going to be closer and closer to the average and/or to the benchmark. If that's what you are going to get, then you might as well choose one, single low-cost ETF or index fund and be rid of the whole headache. So far, so good. This is what we have always said. I had naively imagined that the way Value Research readers act according to our ratings and rankings, they must also be acting upon this oft-repeated advice about keeping the size of their portfolios limited.

However, when we started testing our new website on the portfolios of a sample of users, I had quite a shock. The median number of funds that a fund investor has invested in is 23. Fully one-fourth of fund investors have invested in 35 or more funds. This is so far away from what is sensible that our entire team was utterly flabbergasted. I'm confident that in no other aspect of fund investing have investors strayed so far from the right thing to do.

Of course, I'm not saying that this is the state of the larger population. Value Research Online attracts people who are more involved, and with more intensity, in fund investing than the general population. They also invest more. However, one would expect that they are also more knowledgeable and make better investing decisions. My guess is that it's the sellers who are to blame. They keep pitching new funds and many users keep falling for them.

As for the other thing, our new website is not just a new design but is substantially enhanced in almost every way. The Portfolio Manager has a host of new features and in the weeks to come, I'll talk in detail about many of them. The articles, data tools and videos add a lot to the existing capabilities. Unlike everyone else out there, our focus stays on increasing your capabilities as an investor, rather than telling you what to do. At the same time, we recognise that our website needs to become more accessible and easily understandable to savers who are casual investors but do not have a deep interest in either mutual funds or stocks.

The weeks to come are going to be quite exciting for all of us as India's favourite investment website enters a new phase in its life!