5 STAR FUND DOES NOT MEAN YOU HAVE INVESTED IN THE BEST

5 STAR FUND DOES NOT MEAN YOU HAVE INVESTED IN THE BEST

A fund which is rated 5 STAR by Morning Star, 4 Star by Value Research fell 30% in a single day.

And it was a Debt fund to the boot !!!!!!

I have seen almost every single DIRECT investing in funds going by these ratings. God save them.

Not just investors even some newcomers to the Advisory field blindly go by the ratings alone and invest the hard earned money of investors.

And this type of a DISASTER will result in  ensuring that investors  never ever coming back to Mutual funds

Almost all ratings give max weightage to PAST PERFORMANCE and every single mutual fund communication carries the disclaimer PAST PERFORMANCE MAY NOT BE REPEATED and yet !!!!!!!!!

 In fact, I clearly remember VALUE RESEARCH had given a damp squib fund like TAURUS LIQUID FUND A FIVE STAR RATING even as the fund continued to buy the JUNK paper of BALLARPUR INDUSTRIES !!

And you know what…these ratings keep changing, sometimes even on a quarterly basis.

Then what ? Will you keep shifting your money from 1 fund to another ?

Ratings is more of an indication on how the fund has performed IN THE PAST rather than how its going to do in the future.

Fund performance depend on huge number of factors and recent performance could have seen a spike due to various factors including NEWS.

The biggest factor is of course the HOLDINGS of the Mutual fund scheme.

You need to remember that ALL MUTUAL FUNDS GO THROUGH A CYCLE OF GOOD AND BAD TIMES.

What you need to look is

CONSISTENCY,

the underlying securities,

the management pedigree and that’s it.

That’s it? Enough ?

Well, to be begin with….this should suffice but actually, you are better off actually

talking to the fund manager,

even the research team supporting the fund manager,

going through the securities the fund is holding,

the changes in management in the fund, if any and

a host of financial ratios like the

Alpha,

Beta,

Risk Reward Ratio,

Turnover Ratio, etc and most importantly FUTURE GROWTH POTENTIAL.

Too heavy?
Well….thats exactly why you need a Financial advisor.

Does that mean Financial advisors don’t make mistakes.
Financial Advisors are NOT GODs and hence they will definitely make some mistake here and there, but it’s absolutely definite that a Financial Advisor will make far far lesser mistake than a DIY investor and a far less riskier and smaller mistake.

How ?
Simple because the Financial Advisor’s bread and butter depends on HOW WELL HE KNOWS THE IN & OUT OF THE PRODUCT.
He does a lot of research

He interacts with the Fund Team, the peers, the research gurus almost on a daily basis and is definitely much more closer to information that’s not in public domain and is thus in a capacity to take well-intentioned decision before things actually come in TV or paper.

PERFORMANCE OF MUTUAL FUND’s HOLDINGs = PERFORMANCE OF MUTUAL FUND

Analyzing each holding within funds is no small task. A financial advisor is in much better position to do this job than you.

The tom-toming of GO DIRECT and save 1% may look very good and make you feel BRILLIANT.
One mistake and you will look like a STUPID FOOL and not just that but also burn a huge hole in your pocket.

A classic case of PAISA WISE RUPEE FOOLISH.

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