For long-term investors, fund house track record is important

For performance, one could look at how consistently the fund house has schemes in the top quartile across different market cycles


How important is the track record of a fund house when it comes to investing in a scheme?

—Vivek Sheth

When it comes to evaluating a fund house, the notion of a track record is not the same as when evaluating a particular fund. With a fund, we can look at returns across different periods, systematic investment plan (SIP) returns, risks taken, and various ratios. These factors could together constitute an analysis of its track record. With a fund house, however, one has to look at factors such as size (the total assets under management), history (how long it has been around), stability in fund management, along with the aggregate performance of its funds, to evaluate its track record. For performance, one could look at how consistently the fund house has schemes in the top quartile across different market cycles.

For an investor who is seeking to invest for the really long term (over 15 or 20 years), the track record of the fund house she is investing with could play an important role in choosing funds. If a fund house has seen multiple market cycles and delivered top-performing funds over the years, an investor can be reasonably confident that her investments would be well managed over the long term.

I have invested Rs. 5 lakh in 15 mutual funds. I also have SIPs in two more. I was told that I have investments in too many funds. How do I cut out the ones I do not need and how many funds should I ideally have?

—Jai Prakash

Mutual funds should not be seen as a single unitary block of investments. Only when investors do that do they get into questions like whether they have too many funds or SIPs. The right way to view and manage mutual fund investments is to group them based on one or more criteria. Ideally, you should group investments by their purpose and/or time frame. A set of funds (a portfolio) for building a retirement corpus (long-term), another for buying a house (medium-term), and a third as an emergency fund (short-term) are examples of what such groupings could be. In such a situation, the number of funds in a particular grouping or portfolio should not be more than a handful (say, 4-5). Such an approach has a lot of benefits— you will be able to select funds more effectively, monitor the portfolios at a frequency that is in tune with the term of the portfolio, and be able to track your progress towards your financial goals accurately. Of course, this implies that you make investments in mutual funds in an organised and planned way.

So, the first thing is to organise your holdings into such portfolios depending on their purpose or time-frame. If at that point, you have too many funds in a particular portfolio or grouping, you can consolidate based on categories. For example, if a portfolio has 10 funds of which three are large-cap funds, you can consolidate by holding only the top-performing fund among them.

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