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Monday, Mar 15, 2004

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Check the basics before selecting scheme

Nilanjan Dey

ING Vysya Select Stocks. Taurus Discovery Stock. Canglobal. GIC Growth Plus II. Magnum Multiplier Plus. Take them individually and the names may not mean much to you. Consider them collectively and these tell a significant tale. Or a rather sad one, depending on your point of view.

The five, after all, are the worst performing diversified equity funds on a three-year basis. Those who had invested in them three years ago are a very bitter lot today; they have seen so many other equity schemes doing decidedly better during this period.

Reliance Vision and Reliance Growth, for instance, have turned in handsome gains — 55 per cent and 46 per cent respectively — figures that easily make them the top performers.

Schemes such as ING Vysya's Select Stocks and Taurus Discovery Stock have lagged behind, providing a negative 5.6 per cent and a mere 0.48 per cent respectively.

Horror stories like these are not uncommon in the realm of mutual funds and investors must stay tuned to all related developments. Why did these funds stay at the bottom of the heap? What have the fund managers done to stem the decline? These are some of the issues that need to be sorted out before investment decisions are taken.

For the investor community, the reality is simple: Steer clear of the underdogs for they are capable of destroying your wealth. However, it must be mentioned simultaneously that the underdogs of the past may not necessarily hurt your interests in the future.

Incidentally, there is no particular reason why we chose to refer only to the three-year numbers (compiled by Value Research; data as on February 29, 2004). But three years seem to make a pretty decent time period in the equity market.

At this stage, let us revisit that age-old statement that a few basic principles should be followed for choosing the right equity scheme. The track record of the group that promoted the fund, the strategies followed by its fund manager and service standards are just three issues that should come into play. Above all, the investment objectives of a scheme should match the investor's requirements.

Those who are not comfortable with a high-risk, limited-universe sector fund should not look at such an investment and should instead stick to broad-based equity products. Average returns provided by the latter stand at nearly 23 per cent for the three-year period ended February 29. In other words, these funds have outclassed the main indices by quite a margin; the Sensex and the Nifty both gave 10 per cent.

Investors in equity funds are currently only too aware of the volatility in the market at this juncture. They also know that the present wave of public issues will end shortly and that the elections will soon be a thing of the past. Stocks have declined quite a bit during the last few days. Yet many fund managers believe that the outlook for the medium term is positive. Fundamentals remain good. And, as for valuations, there are not too many complaints either. These are prompting investors to expect more from the market.

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