GIVE HIGHER WEIGHT TO LONGER-TERM RE­TURNS

Business Standard - - THE SMART INVESTOR -

Pen­sion fund man­ager RE­TURNS (%) 1-year 3-year 5-year

UTI Retirement So­lu­tions Ko­tak Pen­sion 15.76 SBI Pen­sion 13.26 ICICI Pru Pen­sion 13.38 Re­liance Cap­i­tal Pen­sion HDFC Pen­sion LIC Pen­sion

13.77 14.32 16.93 13.11 10.49 10.89

9.79 9.43

9.38 10.76 8.97 14.31 14.2 13.58 13.47 13.33

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job of con­tain­ing downs­side risk in a de­clin­ing mar­ket. So, chas­ing yes­ter­day's best per­former may not be a very wise idea. “If a fund man­ager has filled his port­fo­lio with high-beta stocks, he may do well amid mo­men­tum but will per­form poorly in a mar­ket that is con­ducive to low-beta stocks,” says Anil Rego, chief ex­ec­u­tive of­fi­cer, Right Hori­zons, a Ben­galuru-based fi­nan­cial plan­ning firm. He sug­gests that in­vestors should give higher pri­or­ity to a PFM whose per­for­mance has been sta­ble across var­i­ous time hori­zons. Such a PFM is also likely to have taken less risk.

In­vestors should also give higher weight to longer-term re­turns. “One fund man­ager may have given a re­turn of 20 per cent over the past one year while an­other may have given a 15 per cent com­pounded an­nual re­turn over five years. Pre­fer the lat­ter. Main­tain­ing good re­turn over five years is a far tougher job than be­ing top per­former for a year,” says Rego.

In­vestors who have al­ready in­vested with a PFM should not shift just be­cause their fund has un­der­per­formed an­other by a small mar­gin. Only if the funds man­aged by a PFM con­sis­tently un­der­per­form their bench­mark should a shift be con­sid­ered.

For most in­vestors, re­turns of the eq­uity fund will be im­por­tant when they are younger while debt funds will be­come more im­por­tant as they ap­proach retirement. Fi­nally, re­view the per­for­mance of your PFM once at least ev­ery cou­ple of years and switch if he has been a lag­gard.

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