The Hindu Business Line : Track record of product is key

While selecting a fund, it is best to go by the long-term track record of the particular product you are looking at, rather than by the identity of the fund house.

Is there any difference between investing in mutual fund companies with Indian sponsors such as Reliance and SBI, and those with multi-national sponsors? Is investing with a multinational fund-house safe? Does the government offer any guarantees if you invest in a mutual fund with a foreign sponsor?

Sankar Raman

The government is not likely to step in to bail out any fund, whether Indian or foreign, in case of poor returns. Even UTI Mutual Fund, which was earlier government-backed, now manages only market-linked funds. As mutual funds channel all your money into equity or debt instruments that are traded on the stock exchanges or in the debt market, your returns from a mutual fund are always linked to how the underlying investments fare in the market.

If the fund performs poorly, you stand to make lacklustre returns or even lose part of your capital. This is true of debt as well as equity funds, though the latter carry much higher risks.

When you invest in a mutual fund, you can be reasonably sure that your money will be invested in stocks or bonds, according to the fund's objectives, and will not be diverted or misused. All fund houses are governed by a fairly stringent set of regulations monitored by the market regulator-SEBI. These have been fine-tuned over the years, so that the major gaps in governance of fund operations and disclosures have been plugged. These regulations provide reasonable protection to investors from malpractice or mismanagement of the money invested in a mutual fund. There is no difference in the way these regulations are implemented for Indian or foreign funds; both are governed by an identical set of rules.

But as an investor in a mutual fund, you will continue to be exposed to the risk of poor judgement on the part of the fund manager who invests your money. All funds, whether equity or debt, carry market risks and style-related risks. A fund's returns, therefore, depend on overall market conditions, investment strategies of the fund house and the manager's investment skills.

As far as performance goes, there has been no particular difference between Indian and foreign-owned funds. Indian funds such as HDFC Mutual Fund, Reliance Mutual and SBI Mutual Fund (which has only recently offered a stake to a foreign partner - Societe Generale of France) manage quite a few equity funds with an impressive five-year record. On the other hand, so do foreign-owned funds such as Franklin Templeton.

While selecting a fund, it is best to go by the long-term track record of the particular product you are looking at, rather than by the fund house.

There can also be a wide divergence between the performance of two products from the same fund house. If you are looking for cast-iron returns backed by government guarantee, mutual funds are not an ideal investment for you. Small savings schemes such as the National Savings Certificates and the Post Office savings schemes may be your best options.

Aarati Krishnan

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