Although past performance is no guarantee for the future, it is a useful way of assessing how well or badly a fund has performed in comparison to its stated objectives and peer group. A good way to do this would be to identify the five best performing funds (within your selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Shortlist funds that appear in the top 5 in each of these time horizons as they would have thus demonstrated their ability to be not only good but also, consistent performers. To get help through this process, you can use our Find-A-Fund query module.

• Start investing as early as possible - the power of compounding is the single most important reason for you to start investing right now as even a relatively small amount invested early will grow over the course of your working life into a substantial nest egg. Remember, every day that your money is invested, is a day that your money is working for you.
• Buy stocks or equity mutual funds and hold long-term – historically, world over, and even in India, stocks have outperformed every other asset class over the long run.
• Invest regularly – use the Dollar Cost Averaging approach – this will help you to adopt a disciplined approach to investing and works equally well for both buying and selling decisions. Importantly, it increases your potential gains when acting against the market trend, reduces risk when you are playing the market trend and relieves you from the pressures of forecasting tops and bottoms. Dollar Cost Averaging can effectively convert a regular savings plan into a regular investing approach.

And, Diversify your investment - by diversifying across assets, you can reduce your risk without necessarily having to reduce your returns. To get the maximum benefit of reducing your risk through diversification spread your portfolio across different assets whose returns are not 100% correlated.

To get the maximum benefit of reducing your risk through diversification spread your portfolio across different assets whose returns are not 100% correlated. Different assets should ideally span across different asset classes such as fixed income, equity, real estate, gold as well as different investment options within these asset classes e.g. within equity shares, your exposure should be to companies in different sectors; or within fixed income investments, partly government risk and partly corporate risk.

As a thumb rule, diversify your investments across 15-20 different portfolio holdings if you are directly investing in stocks or bonds. If you are investing through mutual funds, then three MF schemes for stocks and three schemes for bonds should provide you adequate diversification.

When a fund goes ex-dividend, the unit holders ( as of the ex-dividend date ) are paid out a dividend and the NAV of the fund declines by the amount of dividend per unit paid out. For an investor ( who has bought the fund prior to the ex-dividend date ), this results in an income that is tax-free in the hands of the investor and a capital loss ( as the ex-dividend NAV will be lower than the cum-dividend NAV at which the investor made his investment ) . For e.g., if a fund’s NAV is Rs11 and it pays out Rs1 as dividend, its ex-dividend NAV will be Rs10. In this case, the investor has a dividend ( tax-free ) income of Re1 and a capital loss of Re1 ( Rs11-Rs10 ) . If the investor has made a corresponding capital gain, then it is tax-beneficial to purchase the units of mutual fund just before it goes ex-dividend, take the dividend and then sell the units ( at the ex-dividend rate ) and book the capital loss. If there were no tax benefits, from a pure returns perspective, there would not be any difference in buying a fund cum- or ex-dividend.
 

Yes, balanced funds invest in a combination of stocks and bonds, a typical mix is 60:40 in favour of stocks. Returns from balanced funds are normally lower than pure equity mutual funds when markets are rising, however if the market declines, the losses are also normally lower. Balanced funds are best suited for investors who do not plan their asset allocation and yet want to invest in equities. Buying separate equity and income funds for your portfolio also achieves the same results as buying a balanced fund. The advantage with the former option is that you can choose your own split (between stocks and bonds i.e fixed income) rather than let the fund manager decide the same.

Most private sector funds provide you the convenience of periodic purchase plans (through a Systematic Investment Plan), automatic withdrawal plans and the automatic reinvestment of dividends. You would basically need to give post-dated cheques (monthly or quarterly, periodic date of the cheque is fixed by the Asset Management Company). Most funds allow a monthly investment of as little as Rs 500 with a provision of giving 4-6 post-dated cheques and follow up later with more. Regular monthly investments are a good way to build a long-term portfolio and add discipline to your investment process.