The great virtues of investing in the mutual fund are less popular despite being known to all, and the sole factor behind this is the utter lack of patience amongst the investors. Whereas the working of the mutual fund is as simple as it could be, you invest the money in a fund, which in fact invests on your behalf and you just simply have a laid back attitude and simply watch it grow, and investing could never get simple than this.
But there is another flip side of the coin that although the structure of the mutual fund is simple as ever but finding the right fund for yourself is not that simple because selecting the best possible fund which will work wonders for you and that to from the galaxy of well above 2400 fund schemes is just like searching for a needle in a hay stack. This is one reason why the fund managers come in handy and they replace your tension of searching the right fund for you without the haunting fear of losing the money.
But on one hand there is no foolproof technique of investing where there is zero risk of losing the money and this is what the retail investors must understand that the retail investors must develop the disciplined habit of investing in the equity mutual funds for a long term. However after a saga of two years in which every mutual fund schemes donned the blue, brown or the yellow color code indicating the risk involved to the capital in each of the fund scheme, but now things have moved to the better that is the riskometer which has a better spectrum of spread risk levels of five from the earlier three.
These new guidelines will be effective from the 1st of July 2015for all the existing as well as the upcoming mutual fund schemes also. This minor but very useful change was implemented following the aftermath of the feedback from all quarters like the investors, advisors and the distributors as well because the existing narrow band three color coding had come implications like there was some difficulty in understanding the risk and moreover there are n number of the existing mutual fund schemes which could not be probably slotted into the existing three levels.
This move will be very welcome move and the fund houses will heave a sigh of relief as the funds have now a much better chance to clearly indicate the risk on the investment which a particular fund carries and from the investor’s point of view the new meter is very easy to gauze just because of its visual simplicity to comprehend as compared to reading the risk scale associated with each of the color code. Just of the example sake in the existing meter the blue signifies the low risk to the principle amount invested in the mutual fund scheme, yellow color indicates reflects the medium risk where as the brown color reflects the highest risk to the to the principle amount invested in the fund scheme.
The new riskometer is brought in just to keep in mind the investors, advisor and the distributor’s interest and benefit as the new meter has five levels of the risk ranging from low to high with moderately low, moderate and moderately high in between and this step could prove to be the first step in short listing of the funds for the investment purpose, and moreover its performance and the stated objective will through the light as a prime guide for the investment purpose.
In the mutual funds you will find various terms like value, opportunity, blue-chip, discover, large cap, mid cap, small cap, multi cap, bottom-up, top-down and contrarian etc. As an investor one should worry about the investment risk of a fund and not the volatility because the fund managers actually thrive on the volatility whereby the fund managers build the portfolios and generate the wealth for the funds under them.
The risk adjusted rating or the value research fund rating is a very simple and a convenient composite measure of both the factors like the returns as well as the risks involved and since this is a purely quantitative and hence there is no subjective component to the fund rating reflecting a quick summery of how a particular fund has performed over a given period of time in context to its peers.
However the volatility and the risk factor are the in thing of any stock market anywhere and it is just for the mere purpose of addressing this very concern of the share market certain funds are chalked out which have capacity and fall in the parameter by managing their risk better by using the value research risk adjusted returns. The real issue regarding the investment in the mutual fund is that it should be able to beat the inflation and of course cope with the weird pattern of the market anxiety and the market pattern is three fold one is although the investors invest for the long term.
But there are some investors who chip in for the short term and third factor is coping with different types of money that flows in even for the equity-diversified funds and keep a track of the market reactions. The best amongst the crowd of the mutual funds are Tata Balances Plan A, SBI Magnum Multiplier Plus, Birla Sun Life Frontline Equity, Franklin India Prima Plus, ICICI Pru Value Discovery, HDFC, Reliance Equity Opportunities, Canara Robeco Balance and the Sundaram Select Midcap.
The prime concern of any investor is the returns he gets on the investments and these returns should obviously beat the inflation without an ounce of risk to their investments, if we look upon a period of a 10 year span there may be some dips in a systematic investment plan but eventually they come out as winners thereby creating wealth.