Equity mutual funds had a tough time last year, in fact till the first quarter of this year. The crash in the stock markets resulted in a crash in their net asset values (NAV) and redemption pressures ruled pretty much across the board for equity mutual funds.
Investor interest is slowly coming back into equity mutual funds after the rally seen in the stock markets since March this year. Further, after the formation of the new UPA government , some fund houses are coming up with new fund offers as well. The new UPA government will present its first full budget tomorrow and that will set the tone of the government's policies and steps in the short to medium terms.
On the regulation front, the Securities and Exchange Board of India (SEBI) announced the removal of entry load on investments in mutual funds recently. The SEBI, in its directives, announced that the distributors of mutual funds will have to charge commission separately from the investors rather than deducting it from the investment's principal . Market experts believe that the move looks a bit harsh for agents and distributors in the short term but it will be good move in the long term, and will be beneficial for all the participants, especially the investors.
The upfront disclosures of distributor fee/commission on all the recommended funds would make it transparent for the investors and help in creating a level playing field for smaller as well as bigger mutual fund houses. Some are apprehensive about the possibility of levying and collecting charges to sell mutual funds. However, experts believe investors would definitely recognize the value of services provided in terms of advice and would be willing to pay a fee for the service. For example, investors already pay for stock tips/advice, equity market brokerage etc.
The performance of mutual funds varied quite a bit during the last few quarters . Many mutual funds under-performed the index. The reason remained huge stock market volatility, higher beta of the funds and redemption pressures. Analysts believe that postbudget , the picture of government policies and economic revival will be quite clear and it will be the time to re-evaluate your mutual fund portfolio. It is a good strategy to exit from underperforming equity funds and move the investment to those funds with better performance prospects in the light of the developments.
Investor interest is slowly coming back into equity mutual funds after the rally seen in the stock markets since March this year. Further, after the formation of the new UPA government , some fund houses are coming up with new fund offers as well. The new UPA government will present its first full budget tomorrow and that will set the tone of the government's policies and steps in the short to medium terms.
On the regulation front, the Securities and Exchange Board of India (SEBI) announced the removal of entry load on investments in mutual funds recently. The SEBI, in its directives, announced that the distributors of mutual funds will have to charge commission separately from the investors rather than deducting it from the investment's principal . Market experts believe that the move looks a bit harsh for agents and distributors in the short term but it will be good move in the long term, and will be beneficial for all the participants, especially the investors.
The upfront disclosures of distributor fee/commission on all the recommended funds would make it transparent for the investors and help in creating a level playing field for smaller as well as bigger mutual fund houses. Some are apprehensive about the possibility of levying and collecting charges to sell mutual funds. However, experts believe investors would definitely recognize the value of services provided in terms of advice and would be willing to pay a fee for the service. For example, investors already pay for stock tips/advice, equity market brokerage etc.
The performance of mutual funds varied quite a bit during the last few quarters . Many mutual funds under-performed the index. The reason remained huge stock market volatility, higher beta of the funds and redemption pressures. Analysts believe that postbudget , the picture of government policies and economic revival will be quite clear and it will be the time to re-evaluate your mutual fund portfolio. It is a good strategy to exit from underperforming equity funds and move the investment to those funds with better performance prospects in the light of the developments.
New fund offers
There were many new fund offers (NFOs) during the last few weeks. It is important for the investor to go through and understand the theme of the fund. It is important to evaluate the returns prospects with respect to the investment horizon of the investor. For example, a fund based on the infrastructure theme may give good returns over a long term but may under-perform in the short term. Therefore, it may not be a good idea for a short-term investor to invest in this kind of offer.
Existing open-ended funds
Investors should evaluate the open-ended mutual funds with respect to their past performance and the sectors in focus under the new UPA government regime. The exit and entry decisions from a fund should be based on a careful analysis of both these factors . Investors should gradually move their portfolios from under-performing mutual funds to funds with better prospects.
The first quarter results of 2009-10 have started coming in and this is another event to wait for and watch, before executing a switch strategy completely.
Investors should evaluate the open-ended mutual funds with respect to their past performance and the sectors in focus under the new UPA government regime. The exit and entry decisions from a fund should be based on a careful analysis of both these factors . Investors should gradually move their portfolios from under-performing mutual funds to funds with better prospects.
The first quarter results of 2009-10 have started coming in and this is another event to wait for and watch, before executing a switch strategy completely.
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