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Mutual fund investors primarily invest via the SIP route. However, there are times when you have a surplus amount and want to invest in a lump sum. According to experts, a lump sum Mutual Fund investment is a better option for investors who have a long-term investment plan and have a knowledge of the market. There are broadly two types of mutual fund schemes, actively and passively managed.
A straightforward method to determine whether a fund is active or passive is by examining its active share, which gauges how different the portfolio is from the index.
“A zero active share indicates an exact replication of the index, while a 100 active share means there are no common holdings with the index. If a fund's active share is below 60, it's not an active fund, but rather a closet tracker or a tracker, so it's best not to invest in such funds,” said Amit Gupta, MD, SAG Infotech.
Finding a fund's active share is usually easy, as it's often available on the fact sheet. If it's not readily available, reviewing the top 10 shareholdings can provide insight. If you recognize all the companies, it might be better to move on.
Pankaj Mathpal, MD & CEO at Optima Money Managers listed out ways to invest in active mutual funds
1)Invest in a staggered manner through SIP and STP
2)Invest in diversified funds
3)Diversify the portfolio across funds of growth and value Investment style.
4) Invest in schemes of multiple fund houses to get the benefit of different fund management styles of various fund managers. Don't invest in too many funds and multiple funds of the same fund house.
SEBI registered tax and investment expert Jitendra Solanki said for a large-cap category like the large and mid-cap is a good choice among active funds. With a flavor of mid-cap, these funds can generate good returns.
Apart from this flexi cap funds and multi-asset funds can also be a good option among active funds, he added.
However, active share (AS) isn't a perfect measure of a fund's merits, as managers of low active share funds often point out. “For instance, a fund with only five stocks could have a high active share but also an excessive amount of risk. Furthermore, one could achieve a 100% active share by benchmarking against one index and passively tracking another,” said Amit Gupta.
Despite this, AS is still an excellent and straightforward starting point for determining a fund's active management style, Gupta added.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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