subject: Why The Mutual Fund Unit-holders May Still Be Optimistic [print this page] Do you think the Sensex would reach 21K or even cross it? Or does it seem not very likely? Though some of the skepticism seems to have been shed, the speculations would never stop because the stock markets have been known to be irrational - it is driven by sentiments and that is not always rational. So what does one do under the circumstances?
It is difficult to exactly predict the markets and stock-picking is a tough job unless you are a professional, a much safer bet is to choose mutual funds. This is specially true if you are not an actively trading investor. You need to remember the following points -
Choose a good AMC - This is the first and the easiest step. You know a good AMC on the basis of the Sponsor Company. Some key ones are, HDFC Mutual Fund, Reliance Mutual Fund, Tata Mutual Fund, to name a few.
Choose a good scheme within the fund on the basis of sound fundamentals - This is the most important step to building a good portfoilio. READ THE OFFER DOCUMENT CAREFULLY! This is not just a statutory warning. Sound fundamentals are always a safe bet for investment because you know you are buying value for money even if the scheme is a bit expensive.
Buy on the dips - If the prices are too high, wait a while for them to come down a little, but don't wait too long and don't try to time the market too much. If you have chosen a fundamentally good scheme with a reliable AMC, you dont need to worry too much about the prices as you can be more or less assured of a fair return on your investment.
With the whole world recently witnessing a bull phase and a subsequent bear phase (from beginning to end), the one lesson that everyone seems to have learnt is the control factor so some of the old "irrational exuberance" in the market may now be replaced by more rational growth in valuations. But there is reason yet to be optimistic if you just remember the four points I told you.
