Holding Popular Mutual Funds May Not Give You A Blissful Retired Life…    Aug 30, 2018


Can you plan your retirement with mutual funds?

Yes, you can.

Over the past two decades equity mutual funds and aggressive hybrid funds or balanced hybrid funds, have created huge wealth for investors.

And these days, individuals, particularly retail investors, are increasingly becoming aware of the benefits of investing in mutual funds. Mutual Funds Sahi Hai campaign has helped and so have several other investor awareness initiatives in making mutual funds popular.

As a result, investors are increasingly investing in equity mutual funds and aggressive hybrid funds to build a corpus for a peaceful retirement.

[Read: Are All Mutual Funds ‘Sahi Hai’? Find Out Here…]   

But there’s something wrong about it….

Many novice investors repeatedly, and perhaps blindly, invest in mutual fund schemes that may not help them in their retirement planning, as much as they would expect.

What’s the primary cause for this?

Lack of skills to select a right mutual fund scheme coupled with ignorance to some extent.

Do you know how the majority of investors select mutual funds?

  • Based on where their friends, relatives, and colleagues invest;

  • They prefer schemes that are actively marketed;

  • They prefer schemes from larger fund houses, with larger AUMs; and

  • Many investors consider star-ratings or returns as the only parameter

A majority of investors don’t know where to invest. So, they simply invest in schemes their bank relationship manager or any other mutual fund distributor recommends to them.

This is how some mutual fund schemes become popular and more money flows into them.

Given below is a list of top 10 largest equity and aggressive hybrid mutual funds. Some of these were erstwhile star performers. In their hay-days, these were popular with mutual fund distributors, star rating agencies, and even with unbiased investment advisors.

Some of these were often marketed as evergreen funds. Additionally, the blind faith of investors has fueled their accelerated growth. Of course, the market up-moves encouraged these schemes immensely; however, had these not been marketed and perceived as evergreen funds, growing so much purely on their merit would have been extremely difficult.

Great cry and little wool?
Returns (%)
Scheme Name Corpus (Rs crore) 1 Year YTD 2 Years 3 Years 5 Years
ICICI Pru Equity & Debt Fund(G)-Direct Plan       28,633.4 10.2 1.7 14.2 14.8 22.0
SBI Equity Hybrid Fund(G)-Direct Plan       26,376.3 12.9 3.1 13.6 12.8 21.3
HDFC Equity Fund(G)-Direct Plan       21,753.8 13.2 1.9 17.6 14.6 23.8
Aditya Birla SL Frontline Equity Fund(G)-Direct Plan       21,380.4 10.9 4.4 14.7 14.4 22.2
Kotak Standard Multicap Fund(G)-Direct Plan       21,271.1 14.1 7.1 18.7 17.3 26.3
SBI BlueChip Fund(G)-Direct Plan       20,283.9 11.0 3.8 13.6 14.1 23.7
ICICI Pru Bluechip Fund(G)-Direct Plan       18,747.3 15.6 6.5 18.0 15.9 21.7
ICICI Pru Value Discovery Fund(G)-Direct Plan       16,659.2 13.7 4.5 12.6 11.8 27.2
HDFC Top 100 Fund(G)-Direct Plan       15,260.8 13.3 5.3 17.0 14.8 21.8
Reliance Multi Cap Fund(G)-Direct Plan       9,731.64 14.4 -0.7 14.5 10.3 22.6
CRISIL Hybrid 35+65 - Aggressive Index 12.0 6.4 13.8 12.9 16.9
NIFTY 50 – TRI 20.0 12.8 18.5 15.1 18.8
S&P BSE 200 – TRI 18.0 8.9 18.4 15.8 20.7
Data as on August 28, 2018
Returns above 1 year are compounded annualised.
YTD returns are calculated for the calendar year 2018
(Data source: ACE MF)

Do you hold any of them?

If you do, then you must go for a review of your mutual fund portfolio right away, to understand the reason for their underperformance and whether they still deserve to be a part of your portfolio.

[Read: Unsure When To Review Your Mutual Fund Portfolio? Read This…]

A number of mutual funds have underperformed their benchmark indices on various timeframes. So why continue investing in these schemes may be a critical question in your mind.

Before you can decide on getting rid of them, wouldn’t you like to know what went wrong with them?

There is no one reason!

Some of the mutual funds couldn't handle the large inflows of monies nor find the right investment opportunities either, for some their investment style turned out to be a restriction. While others took too much time to realise their mistakes and continued with the flawed strategies for a long time.

You would be surprised to know, but for a few in the list above, success came by chance. They could perform only under favourable market conditions.

Isn’t the popularity of mutual fund schemes despite their persistent underperformance baffling?

There’s a reason for that.

[Read: Does AUM Size Affect Mutual Fund Performance? Here’s What You Must Know…]

If you noticed, almost all 10 schemes are offered by fund houses promoted by some of India’s leading and trusted business houses.

More than the scheme performance, the stature of business groups promoting them has been affecting the opinion of mutual fund investors. And their ‘evergreen’ sales-pitch has played its part too.

Don’t be shocked to know, PersonalFN had recommended some of the above mutual funds to its subscribers. But it recommends timely exit if the potential of the fund is in doldrums. That’s why portfolio review plays such a vital role in making you a successful investor.

You must realise, mutual fund investing is a process. If you follow the right path, you can achieve your financial goals such as peaceful retirement.

Should you fail, you may miss your easiest goals too!

Before you invest in mutual funds for your retirement, you should know:

  • The age bracket you are in, and the age at which you wish to retire

  • Your current financial health

  • Your risk profile

  • The estimated ballpark figure for your retirement needs [PersonalFN's Retirement Calculator will help you with this]

  • Time horizon before you retire

  • Chart out a personalised asset allocation chart

  • Performance track record across timeframes and market phases to invest in best mutual fund schemes

For example, if you are young and have a high-risk appetite, you could invest more in equity oriented mutual funds to achieve your long-term goals.

[Read: Investing In Mutual Funds Can Help You Achieve Your Financial Goals]

recommended for ur 30s

Always make it a point to assess mutual fund schemes based on various quantitative as well as qualitative parameters for a comprehensive selecting process. 

Read about the comprehensive mutual fund rating methodology followed by PersonalFN, here.

Watch this short video on selecting mutual fund schemes:

Author: PersonalFN Content & Research Team

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