The updated OLM Elite

The key to wealth creation is to know two things—what kind of investor are you and which funds to invest in

By OLM Desk

Whether it is an 8-year old or an 80-year old, the chances of them effortlessly using an Apple product like the iPhone is very high. The reason— the simplicity of the product and its features makes the experience of using their gadgets a pleasure, without the need for a manual. A lot of our readers keep writing to us seeking investment advice; the best mutual fund to invest in. There is no simple answer to that. There is no single mutual fund that can achieve all the financial goals one has.

At the same time, to sift through more than 2,000 mutual funds to select a fund to invest in and to make investing in mutual funds as easy as navigating an iPhone or iPad, we set about understanding investor concerns. The Elite list solves every investor’s problem by categorising funds into groups that are reflective of an investor’s state of mind when it comes to investing. It is a mix of the risk they can take and the investment time frame that they have.

A lot of behavioural science research is pointing to the lesser-thebetter scenario. In his 2004 book, The Paradox of Choice - Why More is Less, American psychologist Barry Schwartz argues that eliminating consumer choices can greatly reduce anxiety for shoppers. The experience is no different when it comes to investors looking to invest in funds. Changing needs of investors has resulted in the birth of the Elite list. The OLM Elite aims to concentrate investors’ attention on a sensible number of high quality funds—a shorter menu containing what we believe are the best funds to suit investor profiles.

As a first step, we defined five types of investors: Beginner, Safe Player, UltraCool, Adventurer and Fixed Guns. Each investor stereotype addresses a core investment need without being constrained by the number of funds to meet those needs. For a start, these five categories have hand-picked funds for each investor type to choose from.

To be relevant with changing times, there is scope to increase the investor types as well as the funds within each such category. For that matter, OLM Elite list is perennial work in progress to ensure investors have an updated and relevant list of funds to pick from. It’s been two years since we started this feature and so far the ins and outs from the fund list has been negligible, which holds to our conviction of selecting funds that are tested over time and have the necessary traits to face the test of time.

Selecting funds
If you are already investing in the funds selected in the OLM Elite, it is a good time to check how your selection is faring. If you are encountering the list for the first time, it could just be the right time to pick a fund from a portfolio that matches your investor profile. To ensure funds are viewed with a minimum three year investment horizon, you will find that the performance of the funds does not indicate a one-year return, which could give a very different picture compared to the reality.

The systematic way to investing in mutual funds is well established and to benefit from that, we set about investing in the Elite list from January 1, 2013 to have a four-year history and performance built into the selected fund schemes. Each fund has a Rs 1,000 SIP in it, and the combined impact of the portfolio is there to see. Of course, the SIP route did not make sense to the Fixed Guns, who are actually looking for a substitute to bank deposits. In case of fixed guns, a lump sum investment of Rs 50,000 was considered started on January 1, 2015.

A lot of rigour and testing went into the fund selection, which we have kept you out of, because what you need to know is a fund that will help you achieve your financial goal and not necessarily what it does. Every fund chosen has a minimum three-year history, with most having a much longer history. We have adhered to the mutual fund disclaimer on past performance and brought in an element of quality, based on our experience by speaking to fund managers to list funds that we think are most likely to outperform their peers in future.

The current list is an investment aid and does not constitute advice or a personalised recommendation to invest. We will regularly scan the universe of funds for each category to not just recommend funds, but from time to time, also suggest exit from funds. And, the list will appear in an abridged version every month in the magazine.

All funds are in regular schemes and growth version. Each fund in the following pages reflects the basic data with its name, the assets it manages and the fund’s performance over different time periods and the gain an SIP investment has made since starting these portfolios. One more thing that we have done away with is the mention to the fund classification of large-cap or mid-cap because such classification varies across fund houses and it has little meaning for an investor.

We believe the Elite list is like choosing from a fast food menu, we are sure of what we are offering. Our less-is-more approach to arriving at this list will be handy and useful without a doubt, something which will also find a more frequent update on our website in the coming months. Happy Investing!

 

olmdesk@outlookindia.com

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