Mutual Fund Application Forms Download Any Applications
Invest in Tax Saving Mutual Funds Invest Online
Infrastructure Bond Application Forms Download Applications

Mutual Fund buying and selling stocks



Equity funds that follow a buy-and-hold strategy have fared better than funds which churn their portfolio quite often.
 
How does a fund manger pick stocks?
 
Does she adopt a `buy and-hold' approach to investing or does she chase momentum in the hunt for returns? For the lay investor, it is often difficult to grasp a fund manager's approach. However, some easily available metrics can reveal a lot about a fund manager's investment style. The portfolio turnover ratio or churn is one such metric. Experts often suggest that investors should watch the portfolio turnover ratio while deciding which fund to invest in.

The portfolio turnover ratio at any point in time shows how often the fund has bought and sold stocks in its portfolio in the past one year. A higher ratio suggests more buying and selling in the portfolio, while a lower ratio implies that the fund's trading activity has been low. A turnover ratio of 100% loosely implies that the entire portfolio has been churned once during this period.

A higher churn is a given in funds which follow a `dynamic' investment style--where the mandate dictates that the fund manager calibrate cash exposure more aggressively compared to traditional equity funds. For others, however, the turnover ratio is indicative of the fund manager's investment style, and not an assigned mandate.

How does turnover impact returns?

A fund's turnover reflects the fund house's culture, says Vidya Bala, Head of Mutual Fund Research, Fundsindia.com. "A fund house that doesn't constantly aim to be a table-topper will follow a steadier buy-andhold approach in its portfolio. Others will look to churn constantly in an attempt to chase momentum and stay at the top of the charts," says Bala. So which is the better approach to investing?


Analysed the portfolio churn of equity funds over the past three and five years to understand how it has impacted a fund's performance. Funds with a turnover ratio of more than 100% have been categorised as high-churn funds and those with a turnover ratio less than 50% as low-churn funds. The study is based on open-ended equity diversified schemes which have been in existence for the past five years. Our analysis reveals that, across all categories of funds, low-churn funds have delivered higher returns. Over the past three years, high-churn large-cap funds have delivered 21.5%, while low-churn funds have clocked 22.5%. Over a five-year period, low-churn funds in the large-cap segment have delivered 12.8% compared to 11.6% by high-churn funds. The same trend is visible in the midand multicap fund categories. The multi-cap funds with high churn have delivered 23.9% and 11.8% over the past three and five years respectively compared to 25% and 13.6% generated by low-churn funds. Some analysts attribute the difference in returns to the hidden expense that accompany higher churn.The more frequently a fund trades securities, the higher the associated transaction costs--they keep adding up. These costs eat into the fund's returns. Frequent rotating of stocks, arguably, also suggests that the fund manager lacks conviction in her stock picks.However, this does not necessarily suggest that high churn is always a bad sign, or that low churn will always yield better results.

Go by performance

A buy-andhold approach works best in a trending market. But in a range-bound market, a higher degree of churn would be more suitable," he says. Some fund managers play a rangebound market better while others make the most of a trending market. Besides, level of churn should also be viewed from the perspective of the fund's size: As a fund grows in size, its churn is bound to come down. It doesn't necessarily reflect on the fund manager's investing style. For instance, large schemes from Franklin Templeton, ICICI Prudential and HDFC mutual fund have recorded the lowest turnover in the past few years.

Data shows that there are outperformers among the high-churn funds as well. And so, investors should not shun these funds simply because their portfolio turnover is high. Consistency in performance should ultimately guide your investment decision.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

0 comments:



Post a Comment


Mutual Fund Application Forms Download Any Applications
Invest in Tax Saving Mutual Funds Invest Online
Infrastructure Bond Application Forms Download Applications

Popular Posts

Mutual Fund Application Forms Download Any Applications
Invest in Tax Saving Mutual Funds Invest Online
Infrastructure Bond Application Forms Download Applications