Money Guru: How to find right funds for gains? Expert decodes

What are the parameters to select the right funds? Is it the historical performance which will yield returns? What to keep in mind before making investments? How to select funds that would give you gains? Expert Pankaj Mathpal of Managing Director at Optima Money Managers gives top tips in chat with Swati Raina in the popular TV show Money Guru.

Comparing mutual funds with benchmarks

Every fund has a benchmark.

Like Small Cap funds have a benchmark in NSE Small Cap index.

Compare funds with their benchmarks to access the performance of the funds.

If the fund is performing better than its benchmark, it could be considered for investment.

Look for alpha in schemes

Alpha is the measure of risks in a mutual fund. Alpha of greater than zero means an investment outperformed, after adjusting for volatility. An alpha of zero suggests that an asset has earned a return commensurate with the risk.

It measures the performance of a scheme based risk adjustment.

It compares risk-adjusted performance with benchmark index.

Higher the alpha in a fund, better is its performance.

1.0 alpha means that fund has outperformed the benchmark index.

-1.0 alpha means fund has underperformed.

Past Performance

Past performance is one of the parameters but not the sole criteria.

Many investors buy a fund only based on past performance.

Do not just pay attention to returns given by the fund over 1 year, 3 year and 5 years.

Don’t buy only those funds which are giving highest returns.

Return could change on a daily basis. Afund which is doing fine today may not do well going forward.

Look for Sector Allocation

Understand sector allocation of funds.

Performance of all sectors may not be same at same time.

Sector allocation is the responsibility of the fund manager.

A wrong sector allocation could prove to be detrimental.

Fund Manager Strategy

Strategy of fund manager must be spot on

A mistake by fund managers could prove costly for the fund.

A good strategy could give good returns even if markets are not doing well.

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Santosh Kumar, West Bengal

Age - 43 years

Rs 7000 investment in 3 funds

Investment for 12 and 10 year old children

Goal: Education and marriage

Seeking advice for Rs goals of 2 cr corpus

Portfolio and Investment per month

ABSL Focused Equity Fund – Rs 2000

HDFC Index Fund Nifty50 – Rs 3000

Tata Digital India Fund – Rs 2000

PPF – Rs 5000

Sukanya Samriddhi Yojana Rs 5000

Advice to Santosh

For Rs 2 cr goal, current investment not enough. Increase in SIP is recommended.

The education goal is 9 years ahead. SIP of 1 lakh is required.

The education goal is 11 years ahead. SIP of 73000 is required.

PPF investment will give returns of Rs 15.64 lakh in 15 years.

SSY will give returns of Rs 29.68 in 21 years.

Sumit Singh Rawat

Age 35 years

Income Rs 67000

Goal: Girl child education, marriage and retirement

Rs 20000 SIP in 6 funds

Sukanya Samriddhi Yojana Rs 2000; PPF Rs 4000

Rs 1 cr goal for education

For retirement in 25 years, Rs 3 cr target

Investment and SIP

ICICI Pru. Val. Disc – Rs 5000

Canara Robeco Bluechip – Rs 5000

PGIM Ind. Midcap Opp – Rs 2500

Axis Multicap Fund – Rs 2500

Axis Smallcap Fund – Rs 2500

Nippon Ind. Small cap – Rs 2500

Advice to Sumit

The selected schemes are good.

Increase SIP by 10 per cent every year.

The current investment will help in attaining goals

Add inflation to the