How to Strategize Your Equity Mutual Fund Portfolio?

Posted On Thursday, Jan 23, 2020


When you build a portfolio of equity-oriented mutual funds, strategizing is the key for long-term wealth creation via equity-oriented mutual funds. And for that, allocating your investible surplus as per your risk profile is imperative.

So, having a mix of funds in the portfolio is important to diversify and reduce the overall risk. This is because every type of equity-oriented mutual fund offers risk-return potential, which is important to recognise when you build a portfolio. Make sure the investment objective of the scheme is in sync with yours and the time horizon is congruent to the long-term financial goals you are addressing.

Further, in each category of equity-oriented mutual funds, there are a number of schemes of various fund houses. When you build a mutual fund portfolio, diversifying your portfolio across fund houses is also important. In this endeavour, your primary focus should be to have scheme/s from fund houses that follow robust and well-established investment processes and systems, rather than ones that work on the whims and fancies of the fund manager.

To select winning mutual fund schemes, always do a peer comparison, and look at the following quantitative and qualitative factors to zero-in on the best mutual fund schemes.

Quantitative factors:

      • Return across time frames.

      • Performance across market cycles (i.e. bulls and bears). This will help you evaluate the consistency of the scheme/s and include only the worthy ones in your portfolio.

      • Study the risk ratios to understand the level of risk the fund is exposing its investors.

      • Gauge the effective risk-adjusted returns.

Qualitative Factors:

      • Portfolio characteristics - This will help you recognise whether the fund manager is true to its investment mandate or deviating from it and indulging in momentum playing to clock high alpha. Engaging in high churning can result in trading and high turnover cost.

      • You should avoid funds with a very high portfolio turnover ratio, i.e. over 100%. Understanding portfolio characteristics will also help you assess how well-diversified the fund’s portfolio is (top-10 stock holdings, top-5 sectors, etc.).

      • The number of schemes managed by the fund manager - Ideally, the fund house should not focus on launching too many schemes, but have only unique ones in its product basket. If the funds-to-fund manager ratio is high; or to put it simply, there are many schemes which a single fund manager handles, it could weigh on the performance of the schemes.

      • The number of schemes managed by the fund manager - A fund manager usually manages multiple schemes. So check if the fund manager is loaded with a large number of schemes. If he is managing more than five open-ended funds, it should raise a red flag.

      • The fund manager's overall work experience – He/she should have a decent experience in investment research and fund management, ideally over a decade. But note that experience isn't always enough. Some schemes managed by fund managers with 15-20 years of experience haven't necessarily done consistently well for a long time. The experience of the mutual fund house's fund management team also plays a crucial role in the overall performance of a fund house.

      • The efficiency of fund house in managing your money - Here you need to check the proportion of equity-oriented mutual funds actually performing and if fund house consistently generates returns. A fund house that performs well across the board is an indication that their investment processes and risk management techniques are sound and efficient.

So, selecting a portfolio of worthy equity schemes is a daunting task. It involves extensive number crunching, data analysis, reading, and making pertinent notes.

Your investment time horizon should be at least 3-5 years when you are investing in equity-oriented mutual funds.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

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

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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