How to choose the best mutual fund for your portfolio

Selecting Right Mutual Fund is like selecting Right Life Partner. Any wrong decision can wipe out your personal wealth. What makes it more difficult is volatility in performance of mutual fund. Some people select Mutual Fund only on the basis on their rankings.

If mutual fund rankings  are 100% correct then all portals or financial advisers should suggest same set of mutual funds to their clients or readers. You will find large variation in the rankings of Mutual Funds.

Second problem is volatility in performance. A star performer fund this year might be worst performing fund next year. It is advisable to review the investment portfolio every 6 to 12 months. In short, undertake the exercise of selecting right mutual fund every 6 to 12 months. Third problem with Indian investor is that they invest without evaluating the investment objective. Reason being investment objective help to decide in which mutual fund class the investor should invest.

Lastly, it is absolutely necessary to understand in which direction economy will move in next 12 months.

Choosing a scheme from thousands of mutual fund schemes available in the market is not easy for many investors. Opting for the right mutual fund scheme is one of the biggest hurdles faced by many new investors. However, you would be fine if you are ready to follow some broad guidelines.


A measure of a scheme’s over- or under-performance by comparison to its benchmark. It represents the return of the scheme when the benchmark is assumed to have a return of zero, and thus indicates the extra value that the manager’s activities have contributed.


Beta is a statistical estimate of a scheme’s volatility by comparison to that of its benchmark, i.e. how sensitive the scheme is to movements in the section of the market that comprises the benchmark. Beta close to 1 means a scheme is likely to move in line with its benchmark, greater than 1 and the scheme is more volatile than the benchmark.

r 2

The R-Squared measure is an indication of how closely correlated a scheme is to an index or a benchmark. It uses an R-Squared range between 0 and 1, with 0 indicating no correlation at all, and 1 showing a perfect match. Values upwards of 0.7 suggest that the scheme’s behaviour is increasingly closely linked to its benchmark, whereas the relevance begins to diminish below that.


Sharpe calculates the level of a scheme’s return against the return of a notional risk-free investment, such as cash or Government bonds. The difference in returns is then divided by the scheme’s standard deviation – its volatility, or risk measurement. The resulting ratio is an indication of the amount of excess return generated per unit of risk. Therefore, a negative Sharpe usually suggests investments would have been better off in risk-free government securities. When analysing similar investments, the one with the highest Sharpe has achieved more return while taking on no more risk than its fellows – or, conversely, has achieved a similar return with less risk.


Volatility is calculated using standard deviation, a statistical measurement which, when applied to an investment scheme, expresses its volatility, or risk. Volatility shows how widely a range of returns varied from the scheme’s average return over a particular period.

Lower volatility means that the holding’s value changes at a steady pace over time.

Higher volatility means that the holding’s value fluctuates over short time periods.

Discrete Performance

The aggregate amount that the investment has gained or lost between two specified time periods.

Distribution of Returns

Distribution analysis looks at the distribution of returns over a given time period. The X axis shows all the possible returns with the theoretical range of -100% to + infinity.

The Y axis shows the frequency with which these returns occur. The purpose of this sort of analysis is to look past the scheme’s average return and determine whether it is the most likely return. This is done by looking at the bell curve and measuring the distributions skew and kurtosis.

Do Not Compare Yourself with Other Investors While Making Investment

Simple Annualised Performance

The absolute increase or decrease in value of an investment over a given period of time, expressed as a percentage per year.

Dividend Yield

The return on an investment by means of interest or dividends received from the holdings. Dividend Yield within fact sheets is supplied by the Scheme Manager on a regular basis, who is under no obligation to define the type of dividend yield supplied i.e. Gross/Net or Running/Redemption.

Tax treatment of dividends

Dividends received from all mutual funds are tax free in the hands of the investors.

However, in the case of debt funds the fund house pays a dividend distribution tax of 28.84% which includes surcharge and cess. In an equity mutual fund there is no dividend distribution tax.

Absolute Performance

This measure looks at the appreciation or depreciation that an asset achieves over a given period of time.Unlike Relative performance, which is compared to another measure or benchmark.

Calendar Year Performance

The aggregate amount that the investment has gained or lost between the dates 1st January to the 31st December for the specified year.

Compound Annualised Performance

The rate of return which represents the cumulative effect that a series of gains or losses have on an original amount of capital over a given period of time, typically one year and above, expressed on annual basis or return per year.

Note : Past performance of fund does not guarantee the future returns.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Under performance of Equity Mutual Fund against their respective Benchmarks

A large number of equity mutual funds in the country has underperformed against their respective benchmark indices over the last five years.

Around 44% of the open-ended diversified equity mutual fund schemes failed to beat their benchmark in the last year. Nine schemes underperformed their benchmarks by over ten percentage points. 31 schemes underperformed by five to ten percentage points. There are 275 open-ended diversified equity schemes.

MFEven the schemes that managed to beat their benchmarks in the last year, 26 schemes outpaced their benchmark by only up to two percentage points.

Moving to specific categories, out of 65 large cap schemes, 30 schemes underperformed their benchmark.

What are Dynamic Funds? ( Video )

The mid-cap category was the worst hit, with 62 percent schemes underperforming. We had a total of 34 mid-cap schemes on our list. 

Around 50 percent multi-cap schemes failed to beat their benchmark. Four in seven small-cap schemes remained under-performers.

Sectoral schemes, which are considered risky because of their focused sector exposure, had 11 under-performing schemes out of 49 schemes in total.

We have compiled a set of top under-performing funds in one-year period across equity categories given in the following table.


The scorecard reveals a majority of large-cap equity funds failed to beat the S&P CNX Nifty, the benchmark for large caps, with 53.33 percent underperforming their benchmark over the last five years, 57.14 percent during the previous three years and 52.63 percent over the previous year.

The percentage of actively managed equity funds underperforming the benchmark indices has seen a declining trend since December 2010. However, their number still exceeds those outperforming the index.

Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

Many actively-managed equity mutual fund schemes have failed or struggled to beat their benchmarks. Always place a lot of emphasis on consistency of performance while choosing a scheme to invest. As a rule, ignore short-term scorching performance while picking a scheme.

However, data from the diversified funds and equity-linked saving schemes (ELSS) suggests a percentage of funds outperforming the benchmark in both one-year and three-year period is stable as compared to five-year period.

Active managers of equity-oriented hybrid funds have also fallen behind benchmarks over both the one-year and five-year time frames.



No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

Do Not Compare Yourself with Other Investors While Making Investment

There is very fine line said by Dan Jensen that, ‘The only goal is to be better than myself, my biggest competition is with no one but myself only.’ that simply means that one should not compare himself with others in any aspect of life but try improving his own work and skills and same applies while making an investment and expecting positive results from it.

In other words, comparing yourself with others can be a very futile and caustic act as we all have our own different goals and skills and we all are not in the same race, our ways to make investments are dissimilar.

Have you ever seen Warren Buffett making any investment with Carl Ichan strategies or Peter Lynch making any investment in David Tepper’s style? The answer is a clear No because they all have their own rules and strategies to make investments and create positive results out of it. Some ways of investing are for long-term, some are short-term, some are for value, some are for growth, some bet on the change and some bet on the things that won’t. It’s even more captivating to hear the different opinions from the two value investors looking at the same company. So, the key point is not making a comparison with others instead compared you with yourself one or two years ago.


Also, one must keep in mind that to be a good investor he must follow more discipline and try to make less investment decision as possible. That simply means you have to believe in your investment decisions that will do good without your involvement. Not comparing yourself to other investors and their performance is not enough for you; you must not worry about other’s opinion also. If you are a contrarian investor, you should not even listen to and worry about people’s opinion about yourself. If you listen to their opinion, it is because you are having more confidence in them than you have in yourself.

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Here are three key points that can help you in making beneficial results from the investments-

Believe in yourself

If you see yourself as a successful investor in future, you must believe in the rules made by you for you. You must have proper planning and strategies for different investments, and you have to believe in that philosophy and the strategies even during tough times. The thing is if you are not willing to take risks and you do not have courage and patience then you can never be an investor.

Do not make unnecessary investments

It is mandatory to know that every investment is not going to give you positive results, so you do not have to invest in all kinds of opportunities or environment. For example, in 1999 the technology is in boom period but Warren Buffett did not make any investment in it, and people said, ‘that’s it for Buffett, he’s too old now.’ And at that time Warren said that ‘I don’t do tech because I don’t understand it and I think it is not for me. I am going to sit it out.

Have the guts to face the failure

The more you get experience in making investments you will come to know that discipline is a must in investing. Sometimes you have to sit out and watch other investors making money in the exact investments that you have already passed on. It is not necessary to follow the trend and invest in everything; you only have to make investments in the things you really know about and then stick to your process with confidence.

Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested in getting regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens Savings Scheme and monthly income plans (MIPs). A lesser-known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is.

What is SWP?

Systematic Withdrawal Plan (SWP) is a service offered by mutual funds which provide investors with a specific amount of payout at a pre-determined time interval, like monthly, quarterly, half-yearly or annually.

How is SWP better than the dividend option?

An SWP is more reliable than a dividend plan when it comes to regular income. In the dividend plan of an equity fund, both the quantum and frequency of dividend is not guaranteed, and it largely depends on market movements and the profits that the asset management company makes.

swp 4
Mr. A invests Rs 15,00,000 in SWP and Mr. B invests the same amount in a bond/deposit scheme with 8% interest. Assuming SWP amount is kept at Rs 10,000 per month or Rs 1,20,000 per year or 8% of the investment amount. Also, let’s assume a return 8% in monthly investment plan or SWP. Both Mr. A and Mr. B are in 30% tax slab and continue to get SWP and interest income for ten years respectively.

In the above example, Mr. A would have paid Rs 37,537- as capital gains tax, while Mr. B would be liable to pay Rs 3,60,000 as a tax on interest income. Over a ten years period, they would have got Rs 12,00,000 as SWP amount or interest income respectively. If funds are not withdrawn even after ten years, Mr. A would have paid only 3.12% tax while Mr. B would have paid 30% tax on Rs.12,00,000 if the inflation rate is 6% per annum.

In another example, Mrs. Joshi has retired with Rs. 1,03,00,000 as separation benefit. Her children are well settled, and she stays alone. The corpus received on retirement has to be invested suitably, and it is decided that 45-50 percent of the total amount will be invested in equity while the balance (50-55 %) will be invested in debt instruments.

Rs.56,00,000 is invested in fixed income instruments to generate regular income. The balance Rs 47,00,000 is invested across different diversified equity schemes. At present, since Mrs. Joshi does not require any additional fund over and above what she receives, her fixed income savings are sufficient. However, over a period, say two years later, the returns from her fixed income schemes can become inadequate to cover her requirements. It is at this juncture that Mrs. Joshi can opt to avail the Mutual Fund SWP option. This withdrawal from her equity-based funds will be tax-free, and this is an additional benefit received.

Another example,




Benefits of Mutual Fund SWP

From the above examples, it is amply clear that the SWP option of the Mutual Funds has its definite advantages. The two major gains derived from this option are again dwelt upon:

Mutual Fund SWP and Regularity:

Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and pay-out of the dividend-paying monthly income plans are not certain or fixed beforehand. Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.

What are Dynamic Funds? ( Video )

Mutual Fund SWP and Tax advantage

In case of investments in equity mutual funds for a period of more than a year, the long-term capital gain is exempted. Only short-term capital gains are taxable at the rate of 15% on withdrawals from equity mutual funds investment within one year. Whereas in case of investments in debt schemes, the short-term capital gain ( an invested period is less than 3 years) is added to the investors income and taxed as per their tax slab. Long-term capital gains in debt schemes are taxed at the rate of 20% with indexation. In Systematic Withdrawal Plan (SWP), the tax is paid only on the gains made due to the NAV movement and not on the principal part in the withdrawals making the overall tax incidence lesser.

Unlike SWP, in traditional investment options, the entire gain is taxed according to the investors’ tax bracket (the highest currently being 30 %) considering if the investor falls under the highest tax bracket.

Regular supplemental income

The option of SWP in the mutual fund can help you by providing a steady source of income from your investments. This is especially useful for those who need money when their cash flow comes to a halt like a retirement, or at a time when supplemental income becomes a necessity due to the altered circumstances in life.

Meet financial goals

If planned well ahead of time, SWPs can provide a steady flow of money when most needed. They can therefore be linked to long term financial goals, such as providing a steady income in one’s retirement years or managing your child’s educational expenses.

If planned well ahead of time, SWPs can provide a steady flow of money when most needed.

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Who can use SWP?

Systematic Withdrawal Plan (SWP) can be utilized by those who are planning for their retirement in the coming years. Usually, the large amount of money that one receives at the time of retirement is invested in traditional savings instruments which attract income tax at the normal rates. Instead, they can make a lump sum investment in mutual funds with SWP facility. In this case, along with earning capital appreciation on the invested amount, he/she can receive a fixed amount monthly. It will help you in getting a regular income like salary even after retirement.

However, the use of SWPs may not be restricted to retirees alone. It is also useful for middle-aged professionals who have the responsibility of their family. They can use SWP option to get a constant source of fund for their dependents. They can plan it for their child’s educational expenses. They can even plan for a steady source of money for their retired parents.

One can easily make all the necessary calculations before investing.

A mutual fund SWP is designed keeping in mind the needs, interests and financial goals of the investors. By judiciously using tools like Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP), you can meet your financial goals without having to go through the hassle of timing the markets and making wrong financial decisions that may cost you dearly and throw you off track.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.


The above information is prepared for the purpose of investor education only and intended to consider as investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investors should consult their financial advisers before taking any investment decision.

What are Dynamic Funds? ( Video )

Every stock market investor wants to buy equities when markets are at their low and sell them when markets are at their peak. But it’s easier said than done as it is always hard to resist temptation when markets are near their peak and it’s always tough to find the courage to jump into equity markets when the markets are falling. But if the investors are willing to take the mutual funds route the above can be easily done with the help of dynamic mutual funds.

Dynamic funds switch between different asset classes, depending on their attractiveness.

Dynamic funds are specifically designed to switch seamlessly between equity and debt, depending on the market conditions. The fund manager of this scheme shifts between the asset classes based on their attractiveness as indicated by certain valuation metrics. Hence, in a rising market scenario, these funds will invest a larger portion of the corpus in equities and hold a lesser amount in debt and cash.


In the case of a falling market, the scheme will allocate more money to debt and, perhaps, hold more cash, while slashing the exposure to equities. Even hybrid funds do that, but they can’t switch rapidly between asset classes and they’re typically true to one asset class, such as equity in case of balanced funds and they invest less in other asset classes. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic. In dynamic funds you can buy on dips and sell when the markets are at high levels. These asset allocation funds act as a shield against market downswings and they typically lose less money when the markets are down.

These funds aims to normally invest in equity but can react quickly to a negative market by moving 100 per cent of its assets into money market instruments, fixed income securities and derivatives with an aim to limit the downside risk, in the event that the fund manager is bearish on the market.

Dynamic funds often have another interesting characteristic. The balance between debt and equity is decided not by the fund manager, but by a formula. To be sure, this is not passive investing (as in an index fund), because the recipe for asset allocation is itself a result of research by the fund house, but there is an element of automation involved. Most funds in the space decide their asset allocation based on a clear formula.

For instance, some funds make equity allotments based on the nifty’s PE while some funds follow the PBV ratio. The goal is always to use indicators like P/E ratio and others to define a time when the markets are ready to fall and to reduce equity allocation at that time and to increase it when the market has fallen enough. Either way, this type of fund brings an interesting element into equity fund investing.

Know more About P/E Ratio and its Significance

Normal equity funds are always supposed to be invested in equities. Conceptually, their job is to do better than the equity market, their job is not to make gains but to do better than their benchmark, even if that means falling less than the markets when the markets are falling.

Dynamic funds, on the other hand, implicitly make the promise of being absolute return funds. They define their job as making gains with their equity investments just like non-dynamic equity funds, but additionally as also getting out of equities when the markets are not going to do well.

Typically, dynamic funds underperform as compared to pure equity funds in continuously rising equity markets because these funds sell equities and get into cash as equity markets go up. But when the markets going down or when there are many fluctuations in the market these funds will often perform better than the normal funds.

A well-managed dynamic fund can absolve you of the headache of timing the markets and investors can earn good returns if they remain with these funds for long term. You could consider such a fund for stability in your investments in a volatile climate. However, remember that aggressive rebalancing may not always work in the fund’s favor. It is also not advisable to go by the short-term performance of these funds alone. They can provide good results if they are held for a reasonable time, at least three to five years. These funds are able to make the most of the market ups and downs given adequate room to work.

Note : Mutual fund investments are subject to market risks read all scheme related documents carefully.

Past Performance is Not A Guarantee Of Future Returns.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Rs. 4 Lakh In Reliance Banking Fund Turns Over Rs. 1 Crore In Less Than 15 Years

If a someone had invested Rs. 4 lakh in 2003 in Reliance Banking Fund, his corpus would have turned over Rs. 1 crore in less than 15 years, means investor’s wealth has doubled in every 2.8 years in this fund.

Reliance Banking Fund is a sector fund focused on the banking and financial services sector. This is an open-ended equity fund having no entry and exit barriers. The fund aims to generate a superior return through active fund management.

The fund has outperformed its benchmark, Nifty500 Banks Index, by almost 450 basis points since its inception.


Reliance Banking Fund, which had an asset under management of Rs. 3034 crore as of July 31, 2017, is one of the flagship funds of Reliance Mutual Fund. Started on May 26, 2003, the Reliance Banking Fund’s net asset value (NAV) has grown from Rs. 10 to Rs. 265.42 on August 7, 2017, delivering a compound annual growth rate (CAGR) of 25.52 percent over 14 years.

It means investor’s wealth has doubled in every 2.8 years. For example, if an investor had invested Rs. 4 lakh in 2003, his corpus would have turned over Rs. 1 crore in less than 15 years.

About Fund Manager

FUND MANAGERInvestment Philosophy

    • Reliance Banking fund is a focused banking and financial services sector oriented fund investing across market caps within the sector.
    • The fund is well diversified across sub-segments like Private Banks, PSUs, NBFCs, Housing Fin Co’s, Broking houses, etc.


    • The fund endeavors to generate superior alpha through active fund management.
    • The alpha generation is attempted through tactical allocation across various sub-segments and differentiated investment ideas.


    • The fund thus attempts to lower risk through diversification while retaining the alpha creation potential.




Banking and financial services sector have been one of the best performing sectors in India. Continued reforms by the government and increasing financial inclusion have benefited this sector over the years. More and more people in India are now moving from the informal lending to formal lending, which has helped the banking sector in increasing its penetration.

With returns from gold and real estate falling, more and more domestic savings is now channelized to financial savings, which has benefited the banking and financial services industry.

Retail investors can invest in the fund through SIP (Systematic Investment Plan) route, which is considered a good medium to create long-term wealth.

A monthly SIP of Rs.10000/- in this fund on May 28, 2003, then your total investment of Rs. 17.10 lakh by July 28, 2017, would have grown to Rs. 95.37 lakh, a staggering 22 percent CAGR.

EMI VS SIP ( Be controlled or take control )

TOP Holdings of Reliance Banking FundR6.1

Risks: Sector funds fall in the high risk, high return category of funds. If the particular sector does well, the sector funds deliver strong returns but if the sectors performs poorly than the returns could be below that of the broader markets. These funds are considered riskier than regular diversified funds.

Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.

Please check the Scheme Information Document

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No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Are New Fund Offers From Mutual Funds Beneficial?

We can see that as the market rises, new fund offers from the mutual funds are on the hike. Numerous fund houses offer the investors by using an appealing and thematic advertising. NFOs might be for many types of funds like fixed maturity plans, hybrid funds, close end/open end debt funds and equity funds.

Reason behind introducing NFOs

NFOs (New Fund Offers) are introduced for a new scheme launched by the asset management company. NFOs are mainly first time subscription offers to come with a new scheme. It is initiated to collect more capitals from the public to purchase securities from the market like shares, government bonds etc. Several times an NFO is introduced by a fund house or a management company just to complete the monthly target or its product basket or if investors demand any certain theme which can’t be played in an open end strategy. NFOs can be introduced for both open and close-end funds. Closed-end funds usually have a tenor between 3 to 4 years. One can make an investment during the offer period only in a closed-ended NFO. But an open-end fund opens again for subscription and investors have the possibility to subscribe at any time after its re-opening at the existing NAV (Net Asset Value).

Why is an NFO different from equity IPO?


An NFO and an IPO (Initial Public Offering) is totally different from each other.


IPOs are issued for mainly two purposes, either by companies seeking capital to expand or by big privately-owned organizations to market themselves publicly. On the other hand, an NFO from a mutual fund is just used to pull out the money from the investors and that money is then invested in purchasing the securities like stocks and govt. bonds etc. based on a specified strategy. It is very hardly seen nowadays that IPOs are done at face value as mostly they are done at a premium to face value while an NFO is always available at a minimal cost of Rs.10.


According to financial planners, ‘Since NFOs are offered at a minimal price of Rs.10, most of the investors got to engage in this trick as a comparison to open-end schemes which might have higher NAVs which is not right. According to many wealth managers, investors must not go for close-end NFOs which often play an existing theme. They suggest investors, to remain attached to the open-end schemes from the mutual fund houses which have an earlier track record.

The plus point in the case of existing schemes is that the portfolio is well known, the investment techniques of the fund managers are also known and the schemes are very well tested and tracked by the investment analysts. On the other side, in an NFO it is not properly known what the portfolio will look like, how much assets the fund will collect and many more things. Some financial planners suggest that the investors should invest in an NFO only if the offer has something dissimilar to the offer from the existing funds or if in the case it is not possible to do something in an open-end fund.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.