Instead of worrying about the rating of funds, look at the fees that they charge. A well performing fund with a lot of aum is likely to be charging LESS than a smaller, but poorly performing fund. Of course this is because there is a ceiling on charges…but do remember…FEES ARE IMPORTANT, and of course competence..
Fees are important and over time they can be very costly.
An initial investment of Rs. 100,000 that grows 8% over 25 years would, at the end of that period, be worth Rs. 734,017. However, if management fees reduced the returns by 2% annually, the investment would only be worth Rs. 446,496, reducing the value of the investment by almost 40%. Many people don’t realize that a fee that sounds as innocent as 2% can result in such a large cost over time. And sebi wants to make it 2.75% – wow!
When you are accumulating your money over a long period of time…fees can hurt.
However the sad thing is that cost alone cannot / should not be the criteria in choosing a fund scheme. You need to see the size of the portfolio, the median and average return over the years, the ability to beat the benchmark, the standard deviation of the returns….
HOWEVER IF you do not do all these things, you are better off looking at JUST THE COST…when you are seeing the list of fund schemes…the BEST COLUMN to watch is the ‘cost’ that the manager is charging. That is finitely better than the ‘rating’ column which you normally see!! (oops I am assuming that you go by rankings !!, if not thanks for reading my blogs on rating!)….
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