Cant go wrong with a strategy

For Indian mutual funds,2010 has been dominated by factors that should have been internal to the business of running funds and thus,of no concern to investors. During 2009,financial regulator SEBI abolished the charging of entry-load effectively,a sales commission from investors. The full impact of this change was felt by mutual funds only during 2010. Through most of the year,fresh investments that were being made by the public into equity funds were less than the withdrawals that were being made. On a net basis,investors were pulling money out of equity funds during most of the year,and for the year as a whole this figure was above Rs 16,000 crore. Thats about 7 per cent of the total amount being managed by these funds at the beginning of the year.

There were two separate and unrelated factors responsible. People were not investing fresh money because distributors have gone off to greener pastures like stocks and insurance. However,I believe that this doesnt have anything much to do with the fact that they are withdrawing their investments in large amounts. Thats happening because the stock markets and thus the NAVs of many funds have reached previous highs. A lot of investors feel that now theres a chance to recover the money they have lost,notionally or otherwise. No doubt,this is not the right way to approach fund investments. If a fund is worth investing in today,then its worth holding on to older investments in it,regardless of what happened in the past.

Most stakeholders in the funds business are trying hard to work out a new business model that can cope with the regulatory changes and 2011 will see a lot more positives than 2010 did. But in any case,a change in the internal business dynamics of the fund should not be a concern of investors. Regardless of how much money fund distributors are making for handling your investments,the fact remains that there are plenty of good funds of all types available for investors. No one will have any trouble finding investments that are suitable for just about any combination of risk and potential returns that they want.

As an individual investor,it is far better to follow a style of investing that is based on those things that never change rather than hope to correctly predict those things that will change. By my reckoning,a great strategy for investing in 2011 wouldnt be one that is finely tuned to whats going to happen during the year. Instead,it would be one which would fit 2010 or 2012 just as well.

The approach needed for a mutual fund investor should be very simple. All that is needed to is to choose a small set of hybrid or diversified equity funds and invest in them regularly over a long period of time. Its practically impossible to go wrong with a strategy. On the other hand,if you start figuring out what will happen in 2011,then you are likely to end up with a strategy with which its practically impossible to go right. The author is CEO,Value Research