Monday, February 4, 2013

BEST Fund for a Passive Investor

Dear Investors,
There are more than 2000 funds in India and selecting the right one is a daunting task even for 'experts' leave alone lay investors.

It is extremely difficult for investors to pick the BEST funds and track them regularly and make the right rebalancing whenever required. Here's where FUND OF FUNDS come to the rescue of the investors.

A FUND OF FUNDS is mutual fund which invests in other funds. In other words, it creates a portfolio of funds and provides the investors with a huge diversification by spreading risk across a larger universe.
The question which every mutual fund investor finds difficult to answer (even the experts) is when to 'change' a I am not talking about rebalancing a portfolio by increasing/decreasing equity/debt but actual replacement of a fund either due to underperformance/change in strategy of fund/etc.
Mutual Fund investing is not a easy task. You not only have to pick the 'right' fund, but also keep a track of them and should consider exiting a fund if it underperforms and find the right replacement. FUND OF FUNDS eliminates the need for frequent switchings.

1. Diversification :
As FOF like the ING Financial Planning Fund invest in more than 1 mutual fund, the investment portfolio is broadened.
2. Investor need not worry about moving from equity to debt or vice versa as the Fund Manager will do the same.
3. FOFs are proven to give superior risk adjusted returns.
4.  Convenience :
An investor in fund like ING financial Planning Fund is spared from the bother of tracking the performances of various schemes and also he need not worry about churning his portfolio.
5. FOFs eliminates the cost and hassle of investing, maintaining and tracking multiple mutual fund schemes

1. Costs : Since the FOF keeps regularly replacing funds, this involves transaction cost to the fund and thus expense ratio could be high because of this constant churning.
However, SEBI has put a cap on Expense Ratio and costs should be reasonable.

2. Tax Treatment : Even if the FOF is fully invested in Equity, the FOF is treated as Debt funds and thus they are liable for Dividend Distribution Tax and Long Term Capital Gains tax.

One Caveat would be, that in case of a prolonged Bull run, ING FINANCIAL PLANNING FUND would give less return than Pure Equity FUND(they will be having typically more than 95% exposure to equity) as the ING FINANCIAL PLANNING FUND would be forced to sell equities at every rise and would thus lose out on compounding.

Srikanth Matrubai's take : Yes, the cost are on the higher side but you are paying for expertise. Selecting a Good Fund is highly difficult task in the Indian context due to the vast gulf which separates the Best Performing Equity Funds from the really bad ones.
The Monthly re-balancing and inputs received from meeting various fund managers are value addition provided by FOFs like ING Financial Planning Fund which a lay investor would find it difficult to replicate.

Though there are quite a number of Fund of Funds in India, almost all of them invest in their respective Fund House schemes and thus do not give benefit of different style of investment and could be baised.
So, you should consider investing in that Fund of fund which aims to pick the BEST fund from which Fund House it belongs to, without any bais.
There are few funds which do this job namely Kotak FOFING Financial Planning Fund among others. 
I would prefer ING Financial Planning Fund as the Fund House is highly experienced in this segment and is in this FOF business since more than 7 years now., (2006).

ING FINANCIAL PLANNING FUND is a rare Fund of Fund which actually invests in Fund of OTHER Fund Houses. It aims to pick the BEST of Funds from across Different fund Houses and put them together into one.
ING FINANCIAL PLANNING FUND is a asset allocation fund which provides you the opportunity to spread your money among asset classes with one single investment.
One reasont to invest in ING Financial Planning Fund is 'simplicity'. You can simply invest in ING Financial Planning Fund instead of bothering which fund to buy, which one to hold, which one to replace as this Fund does all this 'headache' job for you.
Why invest in Fund of Funds?

Compared To Investing In Several Mutual Funds Separately, A Multi Manager
Fund of Funds Brings Unique Advantages

1. ING FINANCIAL PLANNING FUND are ideally suited for investors who are not looking at actively managing their asset allocation.
2. ING FINANCIAL PLANNING FUND can be considered to newcomers to Mutual FUND as the Fund has Debt exposure which provide cover in case of a bear run.
3. Investors who want to eliminate the cost incurred on research and advise on investment cam also consider investing in ING FINANCIAL PLANNING FUND.

ING FINANCIAL PLANNING FUND ensure automatic asset allocation.
ING FINANCIAL PLANNING FUND too are Diversfied Equtiy FUND with a lesser exposure to Equities!!
Go for it.
ING Financial Planning Fund takes Diversification to a new level. The Fund invests in Diversified Funds across Fund Houses and across themes/sectors and ensures wide diversified portfolio with just 1 single fund!!

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1 comment:

  1. Your blog has always attracted me and this particular post left me speechless. It is one of the best pieces of writing I have seen. Good job.


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