POSTED BY May 2, 2013 10:18 pm COMMENTS (10)ON
When one sits to build a portfolio selecting 4 very well performing 5star rated funds , for each goal of his he fixes a SIP amount assuming 12 % CAGR.Say for a time frame of 25 years for retirement he chooses 4 funds expecting a cagr of 12 % for a predetermined corpus to be built.
During this block of 25 years am sure one has to exit from almost all funds if not all , following the strategy of exiting underperformers for couple of years and to put the accumulated corpus in liquid / debt funds and then do a STP into well performing funds.( I assume here that most of the funds do not perform consistently well over 25 years time frame).
What happens during such period of exiting and reentry in MF is a period of growth of say not more than 8 % , w
One might counter argue.
1. That well performing funds have delivered much more than 12 % – say sometimes around 15 – 30 % – and this will help in reducing the brief period of underperformance and retarded growth during exit and reentry strategy into other mf. But I completely disagree on this because of the advocacy for rebalancing of mf portfolio by industry experts , which in itself negates the overperformance by MF by investing the excess in debt. SO in effect by rebalancing , the excess returns gained in a year over 12 % in equity mf is invested in debt.
2. Aim for a cagr of 15 % so that in effect atleast a practical 12 % cagr is achieved – SOUNDS MOST PRACTICAL AND THE BEST OFF ALL SUGGESTIONS.
3. APPOINT A FINANCIAL PLANNER AND FORGET.
This is an area where ULIPS / misselling of insurance come investment products score over MF ‘s. Over long period of time say over 20 years the returns given by ulips / mixed products are more or somewhere near to what is promised initially at the time of policy initiation presentatioon , thus not hampering our long term goal.(THOUGH I AGREE HERE THAT RETURNS ARE COMPARATIVELY MUCH LOWER THAN IN MF ).
Where ulip scores is in there top down approach and almost achievement of goals and the lack of need to require once in a year review/ PORTFOLIO rebalancing.
In conclusion I feel that without the expertise of certified financial planners – to plan for goal based portfolio via MF investment over long period of time , one is certain to not achieve optimal results in long term , based on mf investment. The story is completely different for medium term investments of say 5 to 7 years duration where mf score heavily over ulips.
ANY COMMENTS FROM DISTINGUISHED MEMBERS ON HOW TO PRACTICALLY GO ABOUT THIS PROBLEM IS MOST WELCOME AND IT WOULD BE OF IMMENSE HELP.