The Hindu Business Line : Fund talk

We hold the view that existing diversified funds with a good track record should make up the major portion of your portfolio. With an existing fund, you have the opportunity to evaluate performance across various market phases, spanning a number of years.

For any market-linked instrument, past performance is not an accurate guide to the future. But a track record of consistently outperforming the market suggests that a fund has good investment management skills at its disposal, which will help it navigate choppy markets in future as well.

We have in fact, conducted an analysis of how this strategy (of investing in funds with a five-year record) has worked over the past few years and have found that funds with a good five-year record have consistently managed to do better than the average fund. We have dealt extensively with this subject in the Business Line edition dated February 29, 2004 ("When picking equity funds, rely on history").

Based on their five- year track record, we have been recommending that readers invest the lion's share of their portfolio in funds such as HDFC Top 200 Fund, Templeton India Growth Fund, Franklin India Bluechip Fund and HDFC Taxsaver, as these have consistently beaten the market and many of their peers over the past five years. If you seek an exposure to mid-cap stocks, our preferred choices are Franklin Prima Fund and HDFC Long Term Advantage Fund.

If you particularly like the investment style or concept put forth by a new fund in its Initial Public Offering, then by all means invest in the fund. But until the fund builds up a track record, limit the exposure to a small portion of your portfolio.

If you are attracted by a fund seeking to piggyback on a particular investment theme or sector, invest in them only if you are confident of timing your entry and exit fairly well.

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859/860 Anna Salai, Chennai 600002.)

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