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POSTED BY ON February 6, 2013 4:33 pm COMMENTS (28)
Hi,
I always follow http://www.valueresearchonline.com/toprated.asp portal to compare the Mutual Fund.
Today I came to know that Reliance Regular Saving Equtity (G) mutual fund ratting is reduced to 3 star. Till 1 Feb 2013 it was 4 star.
As I want to invest in Multi cap fund so should I withdraw money from this fund and invest in 5 star or 4 star fund or I should wait for 2-3 months before switch.
I am investing in all types of funds and different fund house. Like:
1. DSP Black Rock Top 100 Equity (G) – Rs. 5500 per month
It is Large Cap 5 star fund (Value Research)
2. Reliance Regular Saving Equity (G) – Rs. 5500 per month
It is Multi Cap 3 star fund (Value Research)
3. HDFC Top 200 (G) – Rs. 5500 per month
It is Large & Mid Cap 5 star fund (Value Research)
4. IDFC Premier Equity (G) – Rs 5500 per month
It is Mid & Small Cap 4 star fund (Value Research)
Currently as per Value Research 5 star funds are:
1. BNP Paribas Dividend Yield
2. IDFC India GDP Growth
3. ING Dividend Yield
And 4 star funds are:
1. DSPBR Equity
2. L&T India Special Situations
3. L&T India Value
4. Principal Dividend Yield
5. Templeton India Equity Income
6. Templeton India Growth
I will prefer Templeton India Growth as I am already investing in DSPBR and IDFC fund house. BNP Paribas, ING, L&T and Principal are not big fund houses.
Should I go for Templeton India Growth or wait for 2-3 months for Reliance Regular Saving Equity rating update?
Please suggest.
Thanks
Paresh
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Dear Paresh, sample this –
RRSF is 5* in May 2013, ‘ll remain there till July 2013, come down to 4* in Aug 2013, again climb to 5* in Dec 2013 & this up & down continues ……
How many times ‘ll you invest in or redeem from RRSF? Please decide.
Thanks
Ashal
Hi,
Instead of Franklin Prima should I invest in Reliance Equity Opportunities. As per VR it is 5 star Mid & Small cap fund. In this case I just need to switch the fund in same AMC.
I am investing in RRSF because I want to invest in all type of fund categories (like Large Cap, Large & Mid Cap, Mid & Small Cap and Multi Cap). But because currently RRSF rating is 3 so I can continue with Reliance Equity Opportunities and in future if RRSF rating will be 4 or 5 then again I will switch the fund.
Please suggest.
Thanks
Paresh
Thanks
Paresh
Well said Ramesh.
Agree on your point that Franklin Prima and RRSF are not really comparable. I suggested is since Paresh was looking at a Templeton fund and he has got some AMC related filters in his mind.
Cheers,
Sharad
Hi Paresh,
RSF isn’t a good fund to invest in, as per our analysis.
You can opt for Franklin India Prima fund.
Hey Ramesh,
Good to see your reply.
At any point in time we only have historical data. Data mining, like any other science, if used in the ‘right way’ can work wonders. Unfortunately, in mutual fund ratings, it hasn’t been used effectively.
The first and the oldest machine that ever used data mining is the human mind… 🙂
Even a pro with qualitative analysis, somewhere in his mind is doing data mining. Think of it: he is looking at how the fund managers behaved, how they changed, how were the returns across market cycles, where they invested, their skills and so on. Somewhere they give importance to all these factors in some order. Based on that they take the calls.
My idea is to objectively measure the skills of the fund managers and use that for scoring.
The question is: How is that possible?
The Answer: Performance Attribution, Style Analysis etc. are excellent ways in which the skills, style and others facets of fund management can be captured. Such techniques use historical portfolio holdings and analyse the performance sources and skills that drive performance. If a portfolio manager leaves and a new one with good/bad skills comes in, the same gets captured in the skills objectively.
If the performance of a fund is from demonstrated skills and the style is good, consistently, we can infer that the fund has the ingredients to deliver good returns in future.
In essence, I advocate the usage of same factors that qualitative analysis does, but I believe that a scientific way that can establish a cause-effect relationship can do a better job.
Having said all this, it’s impossible to get the No.1 funds always. However, being in the top few funds is a reasonable objective to chase.
Regards,
Sharad
http://www.thefundoo.com
What you are saying is well and good. I understand that.
1. Personally and recommendation-wise, I believe, find and start with 1/2/3 funds (max), based on qualitative aspects (and not quantitative aspects at all). You want a mid-small cap fund, Franklin Prima is excellent, even Franklin Smaller Companies is good.
2. Check the style of fund, is it a buy-and-hold type of fund with value-investing flavor OR is it a follow-the-momentum type of fund with growth and momentum driven investing styles. Both work in different periods of markets. If you do not want to do, either use a fund which uses both or follow the former.
3. Stop looking at Relative Underperformance with other funds. Sure recipe for disaster and stress.
4. If a fund has underperformed, check whether that is because its style is out of favor or because it has made bad calls. In both things, keep the fund if the manager has still remained consistent. If not, time to change. If the manager leaves, time to change again. Otherwise persist. (In RRSF, there is no reason for leaving, in my opinion).
A 3-star fund can always goto 4/5, and vice versa. If the style is persistent, I am more inclined to buy the underperforming funds. RRSF is a buy for me.
By the way, Franklin Prima is also a buy for me, because of same above factors. However, I will not compare RRSF (benchmark and objective related to BSE 100) with Franklin Prima (benchmark CNX 500 and objective is small and mid caps).
5. Do not change unless you have a very significant reason. The law of averages does catch up.
6. Also, the future is uncertain so Fuzzy Logic is enough for me, rather than precise objective measurements. = Similar to hazy windshield as compared to a clean rearview mirror.
Dear Paresh, a simple solution ‘ll be to check the performance of your fund for your own comfort zone. For example index return is 12% yly & your fund is generating 15% but the top class fund is generating 18%. what ‘ll you do with your fund?
I ‘ll continue with my 15% rather than jumping for 18% funds every now & then. Which may not be in 18% after my entry & that’s what dear Ramesh is trying to tell.
As long as your fund is performing as per your own expectations, no need to worry. Here interesting thing is you should not expect moon at all. 🙂
Thanks
Ashal
Hi
My plan is to invest in RSF for next 1 year irrespective any rating on VR (Value Research). In Feb 2014 if its rating on VR will increase either to 4 or 5 then I will keep investing otherwise I will switch this fund.
My view is that as I am not market expert so I invest in Mutual fund instead of direct equity investment. Now we have several thousands Mutual fund and I cannot judge which is good or bad. So I am dependent on rating agency. If VR will continuously give 3 star or below rating to any mutual fund then it does not make sense to keep investing. We should churn Mutual fund on regular basis depending on ratings.
Thanks
Paresh
If you want, then follow this: http://www.morningstar.in/mutualfunds/f0gbr06r57/reliance-regular-savings-fund-equity-growth/analyst-research.aspx
If the analyst rating falls into Neutral, Negative or Under Review, Switch otherwise continue. Whether the star rating is 3 or 4 or 5 does not matter.
A star rating means an average, and all index funds should have a 3 star rating too. So, by definition, a 3 star rating should not be a problem ever.
Wow. A good debate.
My few cents:
FFC -> Very valid points on statistics. We must use statistics however we should be aware of the shortcomings. However, the star ratings are heavily weighted towards NAV based statistics and more so primarily towards returns…. and there is a clear flaw there.
Ramesh -> Great clear cut thoughts. But I differ on the logic: “Because Star Ratings are not perfect, Qualitative and subjective evaluation is better.”
A qualitative and subjective evaluation has its own demerits viz.:
1. Its subjective. Subjective to the person who is doing it, subjective to his/her capabilities. Its all subjectivity for which you have stock analysts, one buying and the other selling with the same information. Would an analyst be qualified enough to make a judgment on a fund manager’s capability.
2. Its not measurable: One analyst saying good fund management might mean 8/10 while other might mean 6/10. The analyst himself can’t say if it’s 7/10 or 7.1/10.
I think objectivity and measurablity of facts are a key to any decision making process. Opinions are best avoided. There has to be a process that can yield the same results for you and me no matter how many times I repeat it.
Regards,
Sharad
Nice to know your thoughts. I do have a few things to say:
1. What is your own recommendation, based upon your analysis, and a basic reason for selecting those? Any particular thoughts about Reliance RSF?
2. The funds which I selected at around late 2010 have persisted in my selection criteria since their working has remained same. Even at that time, the criteria were not quantitative and even now. In future, will they work well or not, I cannot say. So, any method (quantitative, qualitative, a mix, something new, even astrology or any other way), if it tells you a set of funds in 2004, nearly a similar set should be generated in 2008 and again nearly the same in 2013. And if one or two funds are not there in those sets, an explanation of why they are not there.
Unless you can do this, any method will fail in 2016, 2020 or 2025. So, any method should be prospective.
Retrospective analyses have the biggest problem of data mining, which you must know. Why should only a 1-year or 3-year or 5-year data be used. Why not market cycles or any other, etc.
Drive by looking at the windshield (if it is hazy, understand it is hazy and go slow). Driving by looking at a clear rear-view mirror is not my solution. Hindsight is always 20-20. 🙂
Also check this: http://www.thereformedbroker.com/2012/03/27/lying-by-omission-mutual-funds-track-records-and-departing-managers/
So, any recommendation of ICICI pru Focused Bluechip as 5 star fund omits the big fact that the fund manager who was there since inception has left. Qualitative analysis will point towards this fact and make you wary of the fund. Etc.
The way I see it there is no debate all. We use math (statistics) as a guide but must be wary of limitations. Mix it up with qualitative analysis but we wary of limitations again.
It is simple plain commonsense that is ages old
Qualitative or quantitative, the influence of the rear view mirror cannot be avoided.
Dear Paresh, can you answer a simple question? What was the return generatted by the major indices (Sensex & Nifty) & your fund RSF?
if RSF is sliding & not able to beat it’s benchmark, you reason to worry. If your returns are ok & in line as per your expectations, no reason to worry.
Thanks
Ashal
Hi,
One of my friend just suggested me.
As per Value Research Reliance Equity Opportunity is 5 star Mid and Small Cap fund and IDFC India GDP Growth is 5 star Multi Cap fund
So instead of going for new fund house like Templeton I can transfer all money from Reliance Regular Saving Equity to Reliance Equity Opportunity and from IDFC Premiere Equity to IDFC India GDP.
After switch I will start investing in new funds and stop in old one. I will also make STP (Systematic Transfer Plan) for those units which are less than 1 year old.
So my new portfolio will be:
1. DSP Black Rock Top 100 Equity (G) – Rs. 5500 per month
It is Large Cap 5 star fund (Value Research)
2. Reliance Equity Opportunity (G) – Rs. 5500 per month
It is Mid & Small Cap 5 star fund (Value Research)
3. HDFC Top 200 (G) – Rs. 5500 per month
It is Large & Mid Cap 5 star fund (Value Research)
4. IDFC India GPD Growth (G) – Rs 5500 per month
It is Multi Cap 5 star fund (Value Research)
By this all will be 5 star funds. Should I go for it or continue with old funds?
Thanks
Paresh
IDFC premier is a good fund with good record. So I would hold on to it
As of now both reliance funds have nearly identical market cap holdings! Sectors holdings differ though. Reliance Regular Saving has a more narrow concentration of sectors. Not an expert but could be reason for poor performance. If you cannot stomach this switch to
Reliance Equity Opportunities which has a broader allocation and lower risk.
Keep in mind Ramesh’s point to look beyond ratings!
I am aware of that article. Apples and oranges are combined in statistical definitions in many walks of like, all with limitations.
The past is a foothold no more than that.
Reg. size VR has added a size criterion too. It all depends on interpretations.
The whole idea of statistics to is to quantify stuff which is very very tough to. Instead of being dismissive I choose to be aware of limitations when I use the ratings. If I dismiss this I might as well dismiss my research.
If your entire research is quantitative based, then may be you need to modify.
But you do not need to listen to me. Technically, you are more smart than me. So…
Ramesh, smart has nothing to do with it. The point is one must understand advantages and disadvantages of a method before being dismissive especially if an alternative superior quant method is not in place.
Limitations exist in every field. These days I read more medical journals than physics ones and I am equally amused by what is written.
However I will agree with your central point: rookie investor should learn to look beyond ratings.
Sorry, I fail to see any advantage in the usage of pure quantitative methods. And anything which has disadvantages is trash, hence my original comment.
Regarding superior quant method, because of taxation and transactional costs, chances of development of that in the practical world are pretty bleak.
Anyways, you can see the Destruction which dependence on these ratings does to a good enough portfolio, as in this thread. 🙁
I never said use pure quantitative methods. If this was possible then there would be no need of financial planners. We can just buy software and be done with it. You are entitled to your view and I am not going to try and convince you otherwise.
Just a couple of observations: By any standards this view:
” anything which has disadvantages is trash” is extreme. Very few aspects of life are free of that.
second: mutual fund analysis like any branch of knowledge is a work in progress. All one one can do at given point of time work with what have and attempt incremental changes.
ps. Einstein wasted his latter years trying to get an ultimate theory of everything and got nowhere (of course he could afford to do that .. financially that is!)
Star ratings are pure quantitative analyses. Without any subjective component. They are made by just using computer models, nothing else.
So, if you use them on their Face Values, it is bound to fail.
Simple enough for me.
Hi,
Thanks for response. I am still not getting that should I wait for 2-3 months for rating update or I should switch fund. My time horizon is 25 years. I really don’t know about Risk or Return formula. I just blind trust Value Research and invest money as per rating only.
As at a time I just want to invest in 4 funds so should I stop investing in RSF or continue.
Also you told that, Templeton India Growth and Templeton India Equity Income funds are the best value funds. What is value fund? Is RSF is different kind of fund?
In future if RSF ratting will be upgraded then again I will shift all money in RSF.
In each move I will take care that I will redeem only those units which are 1 year old to avoid Exit Load and short term capital gain.
Thanks
Paresh
My short answer.
Do not change your funds and wait more.
Do one thing meanwhile, make an excel sheet, and every month, put the ratings of the funds. And see how they change.
From 20-25 years point of view, 2 years will not matter.
All your current funds are decently performing funds, with consistent management styles. So continue with them.
Paresh,
Please keep a close key on the fund. For a 25 year time horizon, please be clear about your expectations of equity component performance. As long as this fund is doing close to this ratings will not matter. Of course if the fund keeps performing badly when compare to peers you should consider a switch. There can be no standard answer on when to switch. As long as the fund is performing well above to close to my expectations for my goals I will not switch. This criterion helps me avoid frequent switches BECAUSE
even for a 25 year goal my expectation from equity is not more than 10-12% average annual interest.
Bottomline decision to switch depends on your expectations.
For your query on value fund see
http://www.mutualfundsindia.com/mfi_11072011.asp
Sorry for diverting this thread to another direction.
The star ratings of VRO (and others) are Trash. T-R-A-S-H. Period.
All of your 4 funds are decent, complement each other well. Analytically, Reliance RSF and IDFC Premier Equity are similar, while DSP Top 100 and HDFC Top 200 are similar. In different market conditions they will perform differently.
So, do not worry.
Coming to Templeton India Growth, just for your knowledge, it was 3 star fund just a few months back for a period of about 15-18 months. While Templeton India Equity Income was 5 star just a while back. And, HDFC Top 200 was 4 star.
Lesson to learn: If you will start chasing these ratings, you will tend to get into a fund which will go down in future, while losing the chance of riding the wave of rating upgrade in the abandoned fund.
Also: Templeton India Growth and Templeton India Equity Income funds are the best value funds with us. So, adding them is not a bad choice, but not at the cost of an aggressive fund like Reliance RSF, and certainly not because RRSF has underperformed.
Ramesh I don’t think we can be so dismissive of fund ratings. All ratings follow a well defined statistical procedure. In fact many of these assumptions are quite reasonable.
It is up to the investor to be wary of their limitations (which everything in the world has). To a large extent there is reasonable correlation with risk adjusted performance and star rating. That one should not take knee-jerk reactions based on ratings change is a different matter altogether.
Right.
They do use a well-defined statistical procedure. You are correct there too.
But tell me, how do you use them for investment decisions and periodic reviews.
They can be used as an initial filter for risk and return (VR does not rate a fund which is less than 3 years old and its rating is an average of 3Y and 5Y risk adjusted performance for equity funds).
If I have 80+ funds in an category ratings saves me time narrowing down the low-risk high-return contenders.
Change in rankings also give you an idea of how the fund measures wrt peers
A single funds ranking makes no sense. One must look at several funds and see how they fare in different market conditions.
I would change a fund only when it underperforms wrt to my goal. A change in rank forces me to review the situation. Which is not bad a thing.
Risk and return are not correlated, despite what the proponents of Modern Portfolio Theory and other theoreticians tell us. So even though, their theory is a spectacular failure, their terminologies and definitions have percolated everywhere in the terminologies and markets.
There is no stable relationship between risk factors based on past values and future returns. You are just measuring apples to identify the goodness of oranges. That will never work.
It will work only if you do a Process (Qualitative) monitoring rather than Result (Quantitative) Monitoring.
Check this too. http://www.subramoney.com/2013/01/why-mutual-fund-rating-is-of-no-use/
To conclude, YMMV.