Investment Myth busting: Media stories

One very important media advise is

If the fund has been a poor performer for X quarters, sell it off“.

This looks so stunningly correct an advise that few people will be able to shrug it off. Take for example in the current down turn of the Indian equity markets the performance of ‘balanced’ funds. When the index was 9000 ‘Dsp balanced fund’ was being seen as a better performer than ‘Hdfc prudence fund’. For most advisors (churners) this became a fantastic opportunity. “Sir, Hdfc Prudence is underperforming, why do you not shift to dsp balanced fund” became a great question to ask.

What was wrong was simple. Hdfc prudence is a balanced fund with > 65% in equities (so the taxation is like an equity fund) whereas the DSP balanced fund has about 50% in equities and the balance in debt. So when equity markets fall, Prudence will fall much more than DSP’s balanced fund! However when the market rises, prudence will go up faster than DSP Balanced fund! And this has nothing to do with fund management skills of the fund manager.

Without understanding how to compare funds (whether to compare at all is a seperate topic) if you churn your portfolio, nobody benefits especially now that there are no entry loads.

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