I have a question regarding investments in Fidelity Mutual. I have noticed that in recent times you are advising investors to stop SIPs with Fidelity Equity whereas quite a few web sites continue with their five-star rating on the fund, even after takeover by L&T Mutual.
I would like to know why there is a difference of opinion when it comes to performance of a particular fund.
It is good that you raised this query. The star rating provided by various web sites are based on the returns delivered by funds in the past. Risks taken to generate such returns are also considered for such ratings, based on certain risk-return metrics. Often times, screeners/automated filters are used to generate such a rating list.
But such rating is unlikely to take into account future performance that may be either positively or negatively impacted by change in fund manager or change in management of the fund house.
Hence, under normal circumstances, while a top-rated fund can be expected to continue past performance (although not 100 per cent of the time), any significant change such as the ones mentioned above, brings in an element of uncertainty.
Change and uncertainty
Typically, a new management may have a different investment philosophy or it may bring in its own expert team to manage the fund. This may either result in a poor performing fund actually climbing up the return chart or sometimes the other way round.
In Fidelity Mutual’s case, while L&T Mutual has stated that the current fund management team will continue for sometime, it is possible that the Fidelity managers may decide to move on.
Also, L&T Mutual, as a fund house, has expanded and done well in its debt portfolio after it took over assets of DBS Chola Mutual. But in comparison, its equity performance record has remained lacklustre.
Taking these factors, we have taken a cautious stance and been advising investors to stop SIPs in the Fidelity equity funds for now. But we have not recommended investors to exit investments made so far. Almost all of Fidelity Mutual’s equity funds have built for themselves a good track record over the last 3-5 years.
Fidelity India Special Situations and Fidelity International Opportunities have done well in the last six months, with the rupee depreciation helping the latter gain ground.
But Fidelity Equity and Fidelity India Growth have lagged behind peers over this period. These short-term blips will not immediately result in change in fund rating offered by some websites.
That said, it is still early to judge the performance of these funds. Hence, to err on the side of caution, we are recommending a hold. An exit from the funds though, may not be warranted right now. In fact, an exodus of money, if investors panic, may only add to the fund’s pressure and result in underperformance.
As an investor, if you are game for any volatility in your fund performance, you can still continue your SIPs. Otherwise, you can simply shift the SIP to other sound funds that we have recommended in our columns or ones that you already hold.
*** This is with reference to your article on August 19 where you have mentioned Goldman Sachs S&P CNX 500 index fund. I checked for the performance of the scheme and it was displayed as zero. Also, I could not check its portfolio.
You had also mentioned schemes from Quantum Mutual, IDFC and so on. Do you think these schemes will deliver returns that beat inflation? I am a mutual fund investor and would like to invest Rs 2,000 a month for the next five years in funds that will return well.
Rajan Dhebri
Goldman Sachs S&P CNX 500 is an index fund that was launched in 2008. It was earlier called Benchmark S&P CNX 500 and later took on a different name when Goldman Sachs bought Benchmark Asset Management.
You will have to go to the web site of Goldman Sachs Asset management to get fact sheets which will have past performance, top sectors as well as the top and bottom performers in the index for a given month.
Please note that this is a passive fund and will simply mimic the portfolio of CNX 500 index. You can check the CNX 500 index in the NSE web site to view the portfolio.
The funds mentioned in the previous week’s query column include Quantum Long Term Equity and IDFC Premier Equity. The former is a diversified equity fund with a bias for large-cap stocks. The latter is a mid-cap focussed fund. These funds have built a sound reputation and we expect them to beat inflation comfortably over a 5-8 year period. But in the short- to medium term of up to three years, a volatile market can wipe out returns.
In the last one year, while established funds have delivered reasonable returns, the category average returns for diversified funds stood at just 5 per cent, much lower than the consumer price inflation of 9.8 per cent over a year.
Hence, it may be important for you to invest regularly over the long term to ensure you comfortably meet rising prices. For the Rs 2,000 a month of savings, you can invest in Quantum Long Term Equity or Franklin Bluechip. Both have a large-cap bias.
If your savings increase, you can invest in mid-cap funds such as HDFC Mid-Cap opportunities or IDFC Premier Equity.
Queries may be e-mailed to > mf@thehindu.co.in