Don’t Choose Mutual Funds Based Just On Ratings

Queries

Many mutual funds (MFs) are not rated. Should ratings be made compulsory for all mutual funds above a certain fund size? How do ratings help choose a fund?

Ratings should not be taken as a factor to identify investment opportunity in any mutual fund scheme. There are various independent rating agencies, such as Value Research, Morningstar, and Crisil, which provide ratings for various category of funds based on quantitative and qualitative factors, such as performance, portfolio quality and fund manager track record. For instance, within performance, the ratings agencies may look at consistency of performance in near-term and long-term, or even risk-adjusted performance.

While ratings can be good to get a broader understanding, one should consult a financial advisor to get a detailed analysis, including more subjective and qualitative factors.

My wife (51) and I (53) invested in equity mutual funds through systematic investment plan (SIP) 17 years ago with a plan to retire after 15 years. We topped up the SIP every year and accumulated a good amount and retired last year. We started a systematic withdrawal plan (SWP) plan from that amount. We have 90 per cent in equity and the debt portion is 10 per cent. Our portfolio growth rate is 14 per cent per year and we withdraw around 6 per cent. We have no liabilities. Should we reduce the equity part, considering our increasing age?

Given that you are in your retirement phase and require regular monthly inflows to meet your financial needs, capital protection along with income, should ideally be your primary goal rather than seeking higher returns. Therefore, you may consider reducing your equity exposure with a view to better manage volatility, as debt is relatively more stable than equity, which can be very cyclical and volatile. This will also help you reduce chances of withdrawing funds from your invested capital. You may also get in touch with a financial advisor who can help you suggest suitable investments and portfolio allocation.

My risk profile is aggressive and my investment horizon is at least five years. Which hybrid fund is better for me?

Aggressive hybrid funds invest around 65-80 per cent in equity and the rest in debt securities. Before deciding which aggressive hybrid fund you can invest in, you may consider factors such as investment philosophy, strategy, risk-adjusted performance, market-cap allocation, and debt portfolio quality. Lastly, you could consult your financial advisor who may help you in selecting a suitable aggressive hybrid fund for you.

Answers by: Shrinivas Khanolkar, Head - Products, Marketing & Corporate Communication Mirae Asset Mutual Fund

Disclaimer

Views expressed here cannot be construed to be a decision to invest. The recipient(s) should make their own investigation or seek appropriate professional advice to understand the specific legal, tax or financial implications. An investor education and awareness initiative by Mirae Asset Mutual Fund. All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

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