What is switch in mutual funds?
MLF’s Reply: Switch, in mutual funds, is the transferring of money from one scheme to another scheme of the same fund house. The amount is transferred internally. This saves investors from transferring the amount into their bank account and then reinvesting in another scheme. For example, if the current value of your investment in HDFC Liquid Fund is Rs5,000 and, from this, you would like to invest Rs1,000 in HDFC Equity Fund, you would have to switch Rs1,000 from HDFC Liquid Fund to HDFC Equity Fund.
What factors should we consider while selecting equity mutual funds? Can NAV (net asset value) be the deciding factor?
MLF’s Reply: There are many performance parameters one can look at while selecting a scheme. However, just looking at the current NAV cannot be a deciding factor. Mentioned below are the factors Moneylife uses to judge top-performing schemes:
We consider only those schemes with a track record of five years or more and a minimum corpus of Rs100 crore.
We analyse the performance of the scheme relative to its benchmark and other schemes in the category, over the past 20 quarters, or five years. This gives us a list of consistently well-performing schemes. We then shortlist schemes on the basis of their portfolio composition (company and sector allocation), to check their diversification and expense ratio, since costs are important too.
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