Credo Capital

The wisdom of life consists in the elimination of non-essentials. – Lin Yutang.

Often, Im asked  what about this new equity fund which has come up. should i buy it?

Somehow the idea seems to be that the new funds like new cars are better or are cheaper. While it may be true that the latest car may have better features than an older one, it seldom is the case in mutual funds. A new fund coming in today will be buying stocks at today’s prices so it is same as buying an existing fund. What is more the existing fund has a track record to verify. We have funds which have completed 20 years and have given returns in excess of 18% p.a overall ( Note : it is overall, not precisely 18% p.a there might have been long spells lasting more than 2-3 years of zero or negative returns and some spectacular years of 30-40% return, IF one had stayed put through all that then the 18% pa becomes reality!) yet we want to move from one fund to another every few years.  Staying put may be much better than moving in and out of funds especially if you are selling because of a year or two of low returns to buy the new fund !

So buy new cars if you want but not necessarily new funds !

Second  question that comes up is : How many funds are enough, no make that i have 10 equity funds is that enough 🙂   Have been horrified sometimes to see 20 equity funds in a portfolio justified in name of diversifying risks, this is diworseification. Around 4-5 funds are enough generally. So some one having 20 equity funds is likely to get lower returns. not higher. More the merrier is sadly not a good idea in investing.

The third question from more experienced investors is : I have enough in MFs, can i invest in something ‘exotic’? Unfortunately investments are not like food stuff. If we want something exotic we can go to a fancy restaurant and order something that we can’t even pronounce properly and feel good about it ( there is even a restaurant in Chennai that locks you up in a cell and serves food inside it!). In investing such exotic stuff seldom works, ultimately all investing is based on one simple premise, giving up some money today in the hope of getting it back along with returns in future, that is all. So whether you invest in stocks, equity funds, Portfolio Management Service is all the same. In stocks we manage the investments ourselves ( mostly not in a good way!), in mutual funds we give it to a professional fund manager (hopefully if not in a good way, at least there are some rules and regulations they follow)  and the same goes for PMS too. Of course there are some differences and one may prefer MF over PMS or vice versa, something exotic for the sake of it seldom works.

Once upon a time ( hardly 10 years back i think, but it seems long now! ) there were art PMS sold by suit-boot bankers to rich clients. They were told that investing in art is a good,exotic and exclusive thing. Or so ,these well-heeled investors were led to believe. Sadly neither the bank which sold the investments. nor the Art PMS exist today. If we want something exotic it is better to head to the nearest super market or restaurant but in investing keep it the way it should be, simple.

Happy weekend.