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3 parameters to look at before you pick your mutual fund house !

by Manish Chauhan · 53 comments

There are more than 40 mutual fund houses (AMC) in India and every investor has his own favorite mutual fund house to pick. We hear about best mutual funds on various websites, hoardings and even look at their performance on valueresearchonline and then choose them for lumpsum investment or starting our SIP.

But on what parameters do you choose these mutual fund houses (not mutual fund) ? Will you pick Birla Sunlife or DSP BlackRock ? Will you choose HDFC or SBI mutual funds? Will you pick Quantum Mutual funds or PPFAS ? Or will it be Reliance Mutual Funds or ICICI Prudential ?

how to choose mutual fund-house

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In this article I want to talk about 4 parameters which were discussed by a Financial Planner – Dinesh Jain in one of the articles comments section. I am expanding them for the benefit of readers.

3 questions to ask before choosing a great fund house

1. Is asset management the core competency and passion for fund house or just another business ?

One of the things, you can look at is – “Is Asset management just another business for the fund house to make money ?”, Or is it also their passion and core competency? Will they close down the business or sell it to some other AMC, just because the revenues are down ? What kind of message do you get when you look at the fund house advertisements or their videos on internet? Take an example of Birla Sunlife mutual funds and Quantum mutual funds, do you see any difference in the way they operate or communicate ? Which fund house do you feel is more focused on asset management ? Or look at DSP BlackRock Mutual fund and Reliance mutual fund , do you get a different kind of feel in both or same ?

The first level filtering of this parameters will clean out some fund houses from your mutual fund shopping list. Note that its up-to you to decide which fund houses you think do not pass this test. You have to do your own study on this.

2. Does Fund house focus on Quality or Quantity of funds ?

The second important parameter to look at how many funds an AMC launches and for what reasons? Now, I am not saying that the fund house should not launch new funds, but do they do it, because of the demand and opportunities in market or just to cash on the market sentiments and mood ?

There are so many fund houses, who came up with new and useless NFO’s during stock market boom, just to cash on the market sentiments and named their funds in such a fancy manner that gives a feeling that the fund is so awesome ! , but when the market was bad, and they could not handle so many funds, they merged them with their other better performing funds.

So some fund houses are really an ASSET MANAGEMENT COMPANY and some are kind of ASSET GATHERING COMPANIES which just want to launch funds and their focus is on increasing the AUM, so more charges can come to them and increase their profitability. Nothing wrong in making more profits or thinking about it, but at what cost is it done is the question? Now its up to you to decide if you want to avoid these kind of fund houses or go with them.

3. How transparent and Honest is Fund House

One of the parameters you can look at is the transparency and honesty of the fund house. Look at their website, and see what kind of disclosures they have made? Do they do what they say ! , or both are different things ? Do they do their investor education program just to sell their products and schemes or genuinely they want to help investors ?

Conclusion

Picking a right mutual fund is important, but you should also do some background check on the parent fund house also before you pick your funds. Note that these 4 parameters are just for reference and it might happen that for someone these parameters does not make sense.

Can you please share what parameter you think is important one !

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{ 53 comments… read them below or add one }

1 Abhishek September 23, 2013 at 1:39 pm

Hi Manish,

The parameters can be evaluated better if you are a distributor of the fund house compared to a Financial Planner, who just recommends funds.

Rgds
Abhishek

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2 dinesh jain September 23, 2013 at 3:25 pm

Hi Manish,

Thank You for penning down my thoughts for the benefit of readers.

I agree with abhishek that a distributor will be in a much better position than a financial planner/common investor when it comes to filtering of the fund house on the basis of above parameters.

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3 Manish Chauhan September 25, 2013 at 12:35 pm

Yes :)

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4 Abbasali Mava September 23, 2013 at 6:14 pm

Hi, Manish
Here i would like to share one experience with investor who told me that i will choose that AMC which have only focus on one business like “Asset management” or “Mutual fund business” only, no other business should associates with this group. Really i appreciate him and i also add this parameter while choosing AMC and giving advise to any investor.

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5 Manish Chauhan September 24, 2013 at 7:29 pm

Thansk for sharing that

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6 Keerthika Singaravel September 24, 2013 at 12:24 am

Manish why is it important to focus on a fund house at all?
Why not do the picking the other way round?
First decide what sort of returns you want,in what time frame,the volatility you can stomach and the permanent loss of capital you can live with along with the liquidity and income you need in between.This should determine the category of mfs a person should invest in.
Then it is simply a matter of finding the best rated funds of that category and looking up their history to check consistency,variation in returns and volatility.
Then we could take a look at the securities the short-listed funds own and the expenses of the fund and decide.
There may be 40 fund houses,but there are not even a dozen funds worth investing in over the long term,so why bother about studying the lot of funds in the market?

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7 Manish Chauhan September 24, 2013 at 7:27 pm

Agree to that point that investors have to do their planning on risk appetite and goals . Now its your belief if you want to choose funds out of filtered list of fund houses or just want to look at Funds directly .

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8 Vikas Bargale September 24, 2013 at 11:23 pm

Hi,
Nice small and tidy article.
As per your criteria, I think only two fund house, pass the test.

Quantum MF and PPFAS MF.

Just my personal opinion.

Regards,
Vikas

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9 Ravi Gupta September 25, 2013 at 11:07 am

I agree with Vikas,

Only two PMS companies (not schemes) have outperformed their benchmarks in all the three periods. These are: Quantum Advisors and Parag Parikh Financial Advisory Services.

You can read more about in the below link .
http://amc.ppfas.com/media/news/pms-performance-the-good-the-av.php#.UkJzSj-I9KZ

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10 Manish Chauhan September 25, 2013 at 12:09 pm

Yes, but only if get very very strict :) . However I think even franklin , DSP , HDFC are some good fund houses !

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11 dinesh jain September 25, 2013 at 12:42 pm

I agree with Manish

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12 Mohana Ganesh September 25, 2013 at 12:48 pm

HDFC as you said is a good fund house. But off late two of their best funds – HDFC Top 200 and HDFC Equity – performance has been dismal. What should one do with these funds – hold or sell?

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13 Manish Chauhan September 25, 2013 at 1:44 pm
14 Mohana Ganesh September 25, 2013 at 2:49 pm

Thank you Manish.

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15 Sameer September 25, 2013 at 8:00 pm

Agree HDFC, Franklin, DSP are good. Opinion on IDFC?

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16 Manish Chauhan September 30, 2013 at 9:40 am

IDFC is another good one ! , atleast better than many others

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17 S.Sivaram September 25, 2013 at 10:13 am

I dont have much knowledge about this but I would rather say Firmly at present Franklin Templeton Fund House is the best in all aspects

Can you advise me on how Quantam Mutual Fund House in these aspects ?

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18 Manish Chauhan September 25, 2013 at 11:54 am

I find Quantum very authentic and one of the best fund houses . THey are small, but are going in correct direction !

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19 dinesh jain September 25, 2013 at 12:45 pm

Also QUANTUM is the first direct to investor mutual funds of india since 2006.

Hats off to Ajit Dayal (promoter of quantum mutual fund) for taking such a courageous approach of not giving commision to distributor and approaching the distributor directly that also in 2006.

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20 Manish Chauhan September 25, 2013 at 1:44 pm

Yea .. even PPFAS has come up with courageous changes

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21 George Joseph September 25, 2013 at 9:23 pm

One parameter i started looking for in a fund is the expense ration. The expense ration is significantly low for PPFAS and Quantum fund, which has a direct correlation with the quality of the fund i feel.

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22 Manish Chauhan September 30, 2013 at 9:40 am

Correct !

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23 Ram September 27, 2013 at 12:28 pm

HI Manish,

One of the rare articles that I didn’t find useful. You’re asking a lot of questions, but have not given any solid examples on each of the categories. As you know, any education will stay better with readers and is possible to implement if you give practical examples

Ram

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24 Manish Chauhan September 30, 2013 at 9:08 am

I knew that Ram. the article was written with a bit of urgency .. Will take care of this from next time . Thanks for sharing your feedback !

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25 Kuntal September 27, 2013 at 7:14 pm

In my humble opinion, investor should first select AMC, then fund. Choose fund houses with 1.low turnover 2.low cost 3.investor friendly 4.sticks to its style 5.has asset management as only business (not side business).
Among large fund houses Franklin fits the bill (maybe even HDFC and DSP).
Among small fund houses Quantum fits the bill (also PPFAS, if they stick to their
PMS principles).

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26 Manish Chauhan September 30, 2013 at 8:54 am

Thanks for sharing your views on this

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27 R Choksi September 28, 2013 at 10:05 am

I feel that though the above points are important to be considered, other points such as consistent outperformance over a longer period is one of the important criteria. If the fund manager is serious only then you will see a continuing outperformace in the scheme and this is despite the company having varied interests other than asset management. e.g. ICICI Focused Blue Chip is a good scheme inspite of ICICI being into other areas such as banking.

Yes, I find Quantum to be a good fund house.

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28 Kuntal September 28, 2013 at 1:25 pm

Another point which I missed- Fund management team should be stable, not changing frequently, not dependent on star manager. Eg Franklin, Quantum.
ICICI Focused Blue Chip has already changed its manager. Also this fund debuted in 2008, so it could buy stocks during NFO at throwaway prices.
It remains to be seen how this fund fares in long term in a more level playing field.

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29 Manish Chauhan September 30, 2013 at 8:48 am

Thanks for sharing that :)

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30 Version October 13, 2013 at 7:42 pm

Hmmm….although I have Franklin, DSP BR, and HDFC funds in my portfolio, but I never had a look at any of the Quantum funds. Thanks to this article and the discussion that followed, I will analyze funds Quantum fund house offers and would possible add one/two funds to the portfolio.

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31 Manish Chauhan October 18, 2013 at 9:52 pm

They are very good :)

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32 Kuntal October 27, 2013 at 9:40 am

An american study on mutual funds by morningstar, conducted over a long time, revealed a very interesting fact. It showed (retrospectively) that the best predictive indicator that a fund will do well in future is not past performance; rather it is expense ratio. Lower the expense ratio of a fund- the more likely it is to perform well in future. Surprising, isnt it?
Thanks,
Kuntal.

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33 Manish Chauhan November 4, 2013 at 11:45 am

Thanks for sharing that Kuntal , can you share the link with us ?

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34 Chetan Ambi November 10, 2013 at 6:46 pm

Manish, U can have look at below links and yes it’s surprising that studies revealed that lower expense of a fund is more likely to preform well in future. I think you can make an article out of this :)

https://personal.vanguard.com/pdf/morningstar.pdf

http://bucks.blogs.nytimes.com/2010/08/11/fund-expenses-more-important-than-five-star-status/?_r=0

http://www.thinkadvisor.com/2010/08/09/morningstar-study-says-high-fees-are-bad-for-inves

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35 Manish Chauhan November 12, 2013 at 5:54 pm

Thanks for the links . Will check them and do some post on those lines !

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36 Chetan Ambi November 12, 2013 at 7:03 pm

Thank you Manish. I will be waiting for the article !!

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37 Manish Chauhan November 12, 2013 at 7:50 pm

Sure .. why dont you yourself give it a try ? You seem to already have learned a lot on this topic ? Guest post ?

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38 Navin October 28, 2013 at 3:57 pm

I like HDFC and franklin for the transparency and the consistency of performance. I hate reliance for eg. in reliance you can start a SIP online but to stop it you have to physically visit the branch and submit a written application(by post also works but still a pain ) to close the SIP. I don’t think this is fair.

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39 Manish Chauhan November 4, 2013 at 11:28 am

Yes. this is a structure created by them to make sure SIP’s are not stopped !

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40 James Dominic December 6, 2013 at 8:03 pm

When we create SIP online we have also to authorise the bank to honour the SIP by means of a unique ID generated at the time of creating SIP. A simple solution is to go to your bank account online and discontinue / stop SIP payment on that unique ID.

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41 Manish Chauhan December 12, 2013 at 2:47 pm

Thanks for sharing that !

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42 aatmaram October 29, 2013 at 3:14 pm

Dear Manish ji,
Is it my post is reaching to you,
Await to hear from you
the current market as it peak (bullish)level, & as per expert says at this time we think of sell the stock to make good profit, anyhow it is tedency that at market down wards one should grab the stock & sell it at peak times.
it is ok for stocks.
my querry is
is it same funda works on Mutual funds means if a new invester wants to enter into MF is it right time for him because if he invest at this time then he hav to wait & watch for time when call more better than this to exit if not he may get nothing. and if this is right then he go by SIP method is it same impact ?
pls give clarity of what is right time to enter for new entrant Or he has to wait for how much period if not he can go SIP method to step into mf.

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43 Manish Chauhan November 4, 2013 at 11:08 am

Obviously a lot of upmove was lost because one did not enter long back . So one can wait. . but if you are investing for long term , its better to start your SIP right away !

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44 Hem November 27, 2013 at 11:06 pm

Just clearing all the backlogs of all your posts.

Recently when I submitted SIP renewal to CAMS, some distributor code was written on it. I’m not sure who did it, CAMS or the fund house? I threatened them that I would complain to SEBI. It was later cleared. I always write “DIRECT”, I missed on it somehow on this occasion.

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45 Manish Chauhan December 12, 2013 at 5:26 pm

Thanks for sharing that. Most of the people do not add DIRECT word and insider people might write the code there !

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46 AJ December 24, 2013 at 2:46 am

Yet again a great topic Manish. If it was not for you guys from JagoInvestor I would have been strolling in the dark today.

To sum up the points I would shrink it to just two words – Fiduciary responsibility !

Does the fund house consider itself a fiduciary? If it does then it will automatically possess all the three qualities mentioned above. Especially because Mutual Fund business is Zero Risk to the AMC and 100% risk to their Investors.

Like lot of the people here I find Quantum AMC possessing top Fiduciary qualities. Some fund houses like HDFC also display good characteristics. In the US market John Bogle and his Vanguard fund embodies the true sense of Fiduciary function.

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47 Manish Chauhan December 25, 2013 at 9:14 am

Thanks for sharing your detailed views on this topic.

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48 Nikhil April 27, 2014 at 5:49 pm

Hi Manish,

I have been a great fan of your website and have taken your advice on several occasions. Need your help once again. Others are also welcome to comment.

I am planning for my retirement at 55 and am 31 right now. Could you please review my MF portfolio for me please.

Goal for retirement: 3 crores
Current investment:
Hdfc mid cap- 1.1 lac
Icici focused blue chip- 60 k
Axis long term- 1lac
Quantum long term- 74k

All of these are lump sum investments and I have picked the lows in the market to invest in it in the last 2 years. I can also look at another 10k per month for the sip but need your suggestion if I should go 25% on each of these ??

Thanks
Nikhil

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49 Manish Chauhan April 29, 2014 at 9:15 pm

Before that, do you know how much interest you need to generate to reach 3 crores with that kind of investments ?

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50 hitesh April 29, 2014 at 10:54 pm

Sir,
OBJECTIVE: in 10-12 yr accumulating 1 crore rs.
Present age:29 married.
monthly saving 80K, own house and no other liabilities.
I have started 2 MF of 3000 rs per month through SIP each and SACH MAN GOLD EFT 1 unit per month.
1. HDFC Balanced Fund-Growth
2. ICICI Pru BLUE CHIP FOCUSED – Growth

Apart from SIP i do purchase units at regular interval approx. 5k every 3 monthly.

please suggest are these mf and gold etf is good enough to give 12% min return, also suggest how much more and where to invest in order to achiev my goal.

Regards,
hitesh

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51 Manish Chauhan April 30, 2014 at 10:19 am

Hi Hitesh

This is more thank a normal question, it needs analysis . Please put your query on our Q&A forum – http://www.jagoinvestor.com/forum

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52 Indrajit Ghosh June 6, 2014 at 4:52 pm

Hi Manish Sir,

I have been investing in
1. ICICI Focussed Bluechip – 5000/month
2. Quantum Long Term Equity – 5000/month
3. Birla Sun Life Pure Value Fund -5000/month
4. Axis Long Term Equity- 25000/year,
through SIP from last one year. Should i continue with the fund or should i make some change?

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53 Manish Chauhan June 11, 2014 at 10:33 am

Hi Indrajit

THis question is a right fit for our forum http://www.jagoinvestor.com/forum

Reply

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