HOW TO CHOOSE PERFORMING SCHEME

When we choose to invest in a Mutual fund scheme implies that we are availing MF’s professional expertise for payment of some fees. We must know that all the Mutual funds charge fund management fees to the scheme. So when we pay a professional fee, we must expect professional returns as well i.e returns in excess of the market’s return for the similar period.

This means that if BSE sensex rise 20% in a particular period, NAV of MF scheme where BSE sensex is the benchmark should rise more than 20% and similarly if Sensex falls by 20%, the scheme should fall less than the sensex. Such schemes only are called performing schemes. Delivery of market beating returns reflects a fund manager’s caliber. Longer the tenure of market beating returns, higher the probability of getting the same in future.

Look at the following table and see the difference of 3% higher/lower returns in 30 year period on our wealth to be created through investments.

Please be very clear that we, the investors bear the entire risks of the markets. Mutual funds are just providing us their professional expertise in managing our investments in different markets. Under this fact, it is essential for us to understand the various markets’ risk return profile ourselves in order to take informed decisions.