Have you ever got stuck up in traffic? I am sure you have. Just imagine your car is new brand with powerful engine, but unable to move an inch because of heavy traffic. And you get what? Frustrated! What happens when you cannot move but the smaller cars in lane next to you is moving faster than you because that lane has lesser traffic than the one in which you are driving. More Frustration! Right?
As a human being it is obvious that you would have strong urge to change the lane and move to the faster lane. And using your driving skills you change the lane. The moment later the lane which you left starts moving and the new lane in which you entered stops moving due to traffic. Now what? Height of frustration!
If there is a smile on your face while reading this, it means you have already have experienced it, probably not just once but more than once you have changed the lane and mostly reached the height of frustration.
Not just driving whenever in our life when we see someone is moving faster than us we try to change the course and find ourselves caught in trap and then feels like we should have stayed in our lane.
Changing Mutual Fund scheme based on Past Performance
So is the case with Mutual Fund schemes. Most investors after investing in mutual fund scheme start comparing the return of their schemes with that other mutual fund schemes. And many a times we change the mutual fund schemes and switch our money into other better performing mutual fund scheme in recent past. And what happens next?
In recent times, Past Performance has become a major criteria of the mutual fund selection system. Investing based on recent past performance is as risky as driving a car by looking only into rear view mirror. While driving, rear view mirror is useful but more than rear view it is your front view which is more important for smooth and safe journey.
Past track record definitely helps in understanding the quality of scheme and ability of management team but recent past performance is not the guarantee for the future.
What else matters while selecting scheme?
Apart from Recent past performance, one should look at consistency of return which can be derived from rolling return analysis for various periods, which requires lot of data crunching rather than just finding out the past one year return.
One should also look at how fund has performed during the best and worst period in past compared to its benchmark and category return.
You also cannot avoid looking at risk parameters. If some fund is generating superior return then it is also necessary to check at what cost. How much risk or volatility is it adding into portfolio.
Choosing fund from the basket of hundreds of funds requires lots of data, analytical skills, education and experience. One can do it by own but it is very risky. Itis always advisable to take the help of qualified professional for building quality portfolio and stick to it with discipline.
Frequently changing lanes rarely helps, in driving or investing.
Happy Investing!
Samsang Financial
Swastik Plaza, Office No. 225
Subhash Nagar Pokhran Road No. 2
Thane W 400606.
+91 9820234913
+91 9930322713
+91 9820342794
Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme-related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in the future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structures (TER) applicable at the time of making the investment before finalizing any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure of commission earnings is made to clients at the time of investments.
AMFI Registered Mutual Fund Distributor | ARN- ARN-9348 SAMSANG FINANCIAL | EUIN E-020243 SAMEET PRAKASH CHAUDHARY
Date of initial Registration: 08-08-2003 | Current validity: 05-08-2025
AMFI Registered Mutual Fund Distributor | ARN- ARN-153539 | EUIN E-272745 SANGEETA SAMEET CHAUDHARY
Date of initial Registration: 20-09-2018 | Current validity: 01-10-2024