I started investing in Mutual Funds about 10 years ago. Those were the days when there were only a few Mutual Fund Houses. Though Unit Trust of India is the oldest Mutual Fund Organization in the country, having been founded in 1964 no one ever associated UTI with mutual funds; nor were their schemes called MF schemes by UTI. The normal risk associated with mutual fund schemes was not considered applicable to UTI. It was not wise to think so. But because of the excellent reputation of UTI, the lines between a Nationalised Bank 's investment products and UTI's schemes were very blurred in the investors' minds. It was much later that UTI faced some problems of credibility and people's blind faith in UTI schemes was shaken a bit.
I started with Debt schemes. In the years following 1998 and up to 2002, the Debt schemes delivered high returns. 12%-14% annual returns were normal. These were far higher than the interest one received in Fixed Deposit schemes of the banks. Safety was not a big problem either. Reputed Mutual Fund Houses invested in highly-rated bond instruments of the Government, financial institutions and companies.. In 2003, the situation changed. The returns from the Debt schemes of the MF houses started dwindling. Monthly Investment Plans which invest about 10-15% of their funds in the stock market held on since the reurns from their investment in stocks in a rapidly-emerging bull market compensated for lower returns from their fixed income investments. It was clearly time for jumping on the bandwagon of the equity schemes of the Mutual Fund houses. HDFC, Zurich, Franklin Templeton, Reliance, SBI , ICICI Prudential , Birla Sunlife, Tata MF etc. had been introducing several new schemes. I must admit that my faith in these fund houses and their equity schemes has been fully justified. While I carefully avoided sector-based equity schemes. I had no doubts about diversified equity schemes. The above-mentioned Fund Houses have been employing excellent fund managers and most of them have delivered mouth-watering returns. Many of their schemes have been delivering above 40% annual return in the last 3 years. Direct investment in blue chip stocks may have also given similar returns since essentially the success of several MF schemes has been due to the long-term bull market which is currently on. But investment in a MF scheme makes life easier for us since experienced fund managers know about investing in stocks far better than us . They ride the ups and downs of the stock market with effortless ease; such ups and downs would have been far more difficult for the average investor to ride and come out unscathingly. Besides, there is a limit to the money which an average investor can invest in any particular stock. And the number of stocks in which one could invest.
One lesson I learnt the hard way has been about the Systematic Investment Plan. Though every piece of advertisement issued by the Mutual Funds or every article in investment magazines eulogises the SIP way as the optimum way, I do not think that it is good for a constantly-rising stock market such as ours in the last 4 years. SIP is more suited to matured markets where the rise and fall are not so steep. In the bull market we have been experiencing over the last 4 years, lump sum investment would be a wiser thing to do than the SIP route. Over a year of SIP investments, there are hardly 2 or 3 months when one has been able to obtain the MF units at a lower NAV than in the previous month.
Midcap schemes are a riskier proposition than large cap schemes. If one wants to avoid pure midcap schemes, there is the option of going in for multicap.
Any beginner in Mutual Fund investment who wants to play safe can consider the following equity schemes. HDFC Equity, Templeton Flexicap, SBI Magnum Global, SBI Magnum Contra, Reliance Growth, Reliance Vision, Birla Midacap, Sundaram Growth, Sundaram Midcap and DSPM Opportunities.