Mutual Funds are more safer for Retail Investors who have less knowledge/exposure to Stock Market. The fund managers manage the funds in a professional way, the investors don’t need to worry about the day to day fluctuations in the market.

However, it is important that the investors choose the right Mutual fund that suits their risk apetite and objective.

The long bull run of the Indian stock market has attracted many individuals to invest in the stock market.  This is a good move to fuel the economic growth.   However many fund houses often come up with fancy titles for New Fund Offers which might not be as fancy as the title says.

For the benefit of new investors, I have given below few tips while investing in Mutual Funds:

1. Diversified Equity Funds gives decent returns.  Sector based Equity Funds and Theme based Equity funds might provide more aggressive return, however, if the sector is not performing well, there could be result in negative return.  For example, those who have invested in Tech specific funds would have incurred losses. 

2. Theme funds invest in specific sectors, but not restrict to one sector. The Themes which are relevant to the Indian’s economy’s growth will be rewarding.  (Infrastructure, Capex, Power/Energy etc.).  

3. Mutual Funds investing in Large Cap, Mid Cap and Small Cap are preferable.  If you have more than 3 years investment horizon, Mid caps and small caps might provide better returns. 

4. Split your investments in 8 or 10 mutual funds at the maximum.  This could be in Frontline stocks, mid caps and small caps.

5. Keep some portion of your investment in Balance funds which will cover the money invested in bearish market and minimize your loss.

6. Open ended funds are preferable than Closed end funds, as open end funds can be redeemed or switched over as per our convinience or once our investment goal is achieved.  

7. Do not invest in New Funds as they do not have any track record.

8. Choose the Asset Management Company, based on their reputation, market leadership etc.  Some Funds might give fancy returns, but they may not belong to reputed Asset Management Company.

9. Keep your investments for longer time, a minimum of one year, max of 2 – 3 years to get decent returns.  Short term investors are not  recommended to invest in mutual funds., they can  trade in primary market.

10. Do not check the NAV on daily basis.  Review your fund performance on monthly or quarterly basis to see if it overperforming or underperforming.  

Here are few Diversified and Theme based funds, which are expected to give decent returns on a investment period of 1 year or more:

DSPML T.I.G.E.R. Reg-G is a well diversified portfolio has helped it deliver good returns. This infrastructure fund is not only confined to core sector. It invests in other sectors like healthcare, FMCG too. This fund has given a YTD return of 70% against the category return of 46% in 2007.  Launched in May 2004, this fund has given a return of 64% from inception.

HDFC Prudence-G is the largest equity-oriented hybrid fund can be a gem in any portfolio. Apart from delivering high returns , the fund protects the downside well. YTD Return for 2007 is 34%.

Sundaram BNP Paribas CAPEX Opp.-G has a mandate to generate consistent long-term returns by investing predominantly in equity or equity related instruments of companies in the capital goods sector.  YTD 2007 Return is 82% and return since launch (Sep 2005) is 69%.

Please note, the past performance may not guarantee future returns.  

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