I like to know which MF to be selected for investing in a SIP among same types of funds with equal performances and risks but with different NAVs.
Ans: When selecting a mutual fund for SIP among funds with similar types, performances, and risks but different NAVs, consider the following aspects:
1. Net Asset Value (NAV) Does Not Reflect Fund Performance
A lower or higher NAV does not indicate better returns.
NAV reflects the fund's per-unit value and changes daily.
Investment growth depends on percentage returns, not NAV values.
2. Expense Ratio and Fund Costs
A lower expense ratio can improve net returns.
Actively managed funds with skilled fund managers may charge slightly higher fees.
Ensure you evaluate the cost-to-benefit ratio before making a decision.
3. Fund Manager's Track Record
Review the fund manager's expertise and past performances.
A consistent manager with strong market knowledge can add value.
Avoid funds with frequent management changes.
4. Fund House Reputation and AUM
Choose funds from a reputed fund house with a strong track record.
A large Asset Under Management (AUM) ensures better stability and liquidity.
Avoid funds with excessively low AUM, as they may face liquidity issues.
5. Tax Implications of the Fund
Assess how long-term and short-term capital gains will affect returns.
Equity mutual funds have specific tax rates: LTCG above Rs 1.25 lakh is taxed at 12.5%.
Debt funds follow your income tax slab, affecting post-tax returns.
6. Investment Goals and Time Horizon
Align the fund choice with your financial goals.
Longer-term goals may benefit from equity-focused funds.
Short-term goals may require hybrid or debt-focused funds.
7. SIP Benefits in Any NAV
SIPs help average out purchase costs over time, reducing the impact of NAV differences.
Avoid basing decisions solely on NAV, as SIPs work on rupee cost averaging.
8. Focus on Portfolio Composition
Examine the fund's portfolio mix and sector allocation.
Ensure diversification aligns with your risk appetite and goals.
Avoid funds with concentrated exposure to risky sectors.
9. Assess Consistency of Returns
Look at rolling returns and consistency across market cycles.
Funds with stable returns in volatile markets are preferable.
Avoid funds with high volatility in performance.
10. Disadvantages of Index Funds
Index funds passively track benchmarks, lacking flexibility in volatile markets.
Actively managed funds can outperform by leveraging market opportunities.
A Certified Financial Planner can guide you to suitable active funds.
11. Benefits of Regular Funds Over Direct Funds
Regular funds offer ongoing advice and monitoring by a Mutual Fund Distributor (MFD).
Direct funds lack professional support, which is crucial for long-term goals.
Certified Financial Planners provide insights and manage your portfolio efficiently.
Final Insights
Choosing the right mutual fund involves evaluating beyond NAVs. Focus on long-term potential, cost efficiency, and alignment with goals. SIPs, combined with expert advice, will help you achieve financial stability.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment