Do you think investments made in MFs between december 05 and may 2006 will yield profit in one year waiting.?

Question

MFs like Reliance equity oppurtunity, TATA Service industries, Tata contra, DSPML Equity,Reliance Vision, ABN Amro Oppurtunity,DSPML Oppurtunity, Reliance Growth, ABN Advantage (ELSS), Prudential Discovery, Fidelity Equity,Principal Infrastructure and service industries Fund.

Answer 1

Hmm, let me look into my crystal ball. Nope, doesn't look good.

We don't "predict" anything because the future cannot be known. Isn't it clear that the future is always uncertain?

What we do is manage our risk first, and try to find an investment that will increase our odds of winning.

But you don't manage your investments, and have turned that responsibility over to someone else in a MF. There's no need to list a dozen of them, since they are mostly the same, in general, in terms of results. Fewer than 10% can beat the Dow or other index it follows because of their fees. Why would you pay someone you don't know to do something you can do yourself? Just buy the Diamonds (the DJIA ETF) if you want to let it ride on the Dow, or the Spyders (SPY - the S&P 500 ETF), or the Nasdaq (QQQQ), or diversify across the entire market by buying all three. The ETF's trade just like a stock or MF.

A MF is always "in" the market, so you are at the mercy of the ups and downs of the Dow. Since you don't manage your risk, you can't put a Protective Stop at say 10%, to lock in your profits when the market goes down. Since you spend more time watching TV, or more time deciding the color of your new car, than you do on learning how to manage money, you don't have a clue what's going to happen. That is not my idea of investing.

My opinion of where the market will be in one year doesn't matter. The market is a living thing that does what it wants, and will go where it wants, when it wants. Nobody knows these things. Your question seems to interject that somebody has "The Answer."

MF's are so 20th Century. Relics of the past. Unneccessary. Buy an ETF.

Answer 2

The funds listed above are 100% equity based funds.

Remember for the stock markets to deliver reasonable returns (don't compare against what happened between 2003 - May 2005), you should remember the first thing is "how long you are invested" and not "on which stock you bet". For equity based funds to deliver you should have a time period of greater than 3 years. If you happen to receive good returns for less than 3 years, it is not because you are wise, it is because the market started to go upwards.

In addition to that, some of the funds you have listed above are thematic funds. There is fair chance that these funds may fail even during the three period. Thematic funds are meant for people who can analyze the market and identify a specific sector which is undervalued compared to the broad market and take calls. You make ask why such an investor should choose a thematic/sector based mutual fund instead of investing directly into the stocks to get a higher return. The answer is, some investors even here would like to have diversity and hence go to mutual funds which may have 30-100 stocks in their portfolio.

To cut short, if the luck is on your side, you may get profits within one year. But remember investing is not a game played for short duration of one year, because no one is 100% successful all the times.

Good luck.

Answer 3

dredude52 has some valid points but also some points I disagree with. In general most mutual funds do not perform as well as the general indexes. I am not so sure that the number is as high as 90% though. I would peg it closer to 70%. I am not familiar with any of the funds you have mentioned and have no idea how they will perform.

But let us discuss mutual funds in general. If any of the above mutual funds are large cap funds, they will probably under perform the market by at least 2% annually after taxes. If any of the funds are large cap growth funds they will probably under perform the market by much more than 2% after taxes. Why do I say this? Large cap stocks make up most of the benchmarks, so large cap funds are basically buying and selling the benchmarks and charging you 1.5% to do so. Also they can not just buy and hold a stock. They think that if they make 10% on it they have to sell it and take a profit. A profit on which you will have to pay taxes. That goes double for growth funds.

Now let's talk about other type of funds. Say that you think that the U S economy is going to underperform the Chinese enconomy. You would like to put your money into the Chinese economy where there is apt to be greater chance of making some money, but you do not know squat about Chinese companies. So what to do. Buy a mutual fund that invests in Chinese companies. Or perhaps Indian companies. Or Japanese companies. Or whatever other countries you might be interested in. Let's say that you are concerned that the value of the dollar is going to drop like a rock. What to do? Buy a mutual fund that invests in foreign debt instruments or foreign stocks.

For many years small cap stocks have outperformed large cap stocks. Let's assume that you would like to get a piece of that action but you know that small cap stocks are subject to going bankrupt really often and you have no idea which of these small companies might be good and which might not. That is where a mutual fund that invests in small cap stocks comes in very handy.