Top 10 tax saving funds: Save tax, make money

Don't we all like making money? Especially if our money grows in value even as we save tax?

Interested? Well, it's not too difficult. One of your options is investing in tax saving mutual funds (ELSS). Those of you who invested in ELSS funds last year must be pretty happy.

According to Value Research, a premier mutual fund research company, investing in certain ELSS funds would have seen the value of your money grow by more than 50 per cent in the last one year.

Simply put, if you had invested Rs 10,000 on June 21, 2006, it would have multiplied to more than Rs 15,000 by June 22, 2007.

What's more, an investment of Rs 1,00,000 in these funds under Section 80C would have been exempt from tax. This would have helped you save on your taxes as well as earn good returns on your investments.

This table shows the top 10 tax saving mutual funds:

Open Ended - Equity: Tax Planning (one year return as on June 22, 2007)
Fund	NAVs as on June 22, 2007	Returns (per cent)
Principal Tax Savings	Rs 87.47	55.26
Principal Personal Tax Saver	Rs 148.99	54.96
Birla Sun Life Tax Relief '96	Rs 101.92	53.86
Kotak Tax Saver	Rs 16.30	53.56
Fidelity Tax Advantage	Rs 14.05	52.00
Canequity-Tax Saver	Rs 17.49	48.28
Magnum Taxgain	Rs 47.53	47.70
Birla Equity Plan	Rs 64.18	46.93
ING Vysya Tax Savings	Rs 28.63	45.40
Franklin India Index Tax	Rs 33.2	41.83

5 habits that can make you rich

Here are five tips to get your finances in good shape.

1. Record your spending habits

It's a simple enough strategy, but it can make a huge difference when it comes to getting your spending under control. The very act of writing down your spending will make you more aware of your habits.

If you wish to curtail your spending later, it's much easier if you have a written record to scrutinise. You should make it a point to examine your spending every few months and to cut back on items that aren't really worth the money.

You can record your spending using pen and paper, or you might prefer to use an application like Excel which provides you with several useful analytical tools. Today, there are even mobile applets which will allow you to keep track of your spending on your cell phone.

2. Do your research

When it comes to big-ticket items like consumer electronics, cars and so on, it's very important to carefully research the product before making a purchase. This has gotten a lot easier with a number of online resources which provide product reviews by professionals and ordinary users as well as price information.

For every product category, you should try to find what reviewers call the 'sweet spot' -- this is where you get the maximum features for the money. This is generally not the most expensive or cheapest product, but one that is somewhere in the middle. Often when, say, a phone company introduces a new top-end product, the earlier top product will become cheaper and very attractive in terms of value. You should be alert to such opportunities.

3. Be flexible and patient

Very often, you can save quite a lot of money by waiting a little or by buying a different brand to your usual one. For example, if you go to a supermarket there will be a different set of brands on sale every week in each category. If you buy the items that are on sale, instead of sticking to your regular brand, you can save quite a bit of money.

Similarly, if you are planning to buy consumer electronics, you might want to wait for a sale. Make sure you keep track of the 'sale' ads in the papers and, before long, you may get a great deal on the product that you are interested in. Likewise, if you are prepared to wait, then you can also get attractive deals on books at one of the many book fairs that are held every year.

4. Look at the big picture

Quite often, we end up overspending on small things like coffee and cigarettes, which don't seem expensive but add up to a considerable amount over a long period.

That money could be better spent on something truly important like a retirement fund or something that would give us genuine satisfaction like a car or a trip abroad.

As an exercise, examine one of your habits and see how much money you spend on it over the long run. For instance, if you are a smoker, add the money you spend on cigarettes every month. Then, use a savings calculator to see how much it will add up to by the time you retire. You might be surprised at how large the amount is.

5. Save and invest every month

Saving and investing in a disciplined and regular manner is a very important aspect of managing your finances properly. Start investing as early as possible and get the power of compound interest to build yourself an adequate retirement fund.

Based on your salary and expenses, figure out a savings target. Make it a point to save that target amount at the beginning of every month. The best investment for the long run is probably mutual funds; you should invest in several funds covering the main sectors of the economy and the different types of companies (large-cap, mid-cap, etc).

Investment lessons from Sachin Tendulkar

Sachin Tendulkar out for a Duck! Does that make him a bad player?

Majority of us would say no. But when it comes to equity investments, one bad year, innings or loss and majority of us are out of the investment mood. Worse, we feel like never investing in equities again.

But there is another way to view this, just as the long term average of Sachin is excellent, so is the long term average of equities as an asset class globally.

For instance, if you had put in money aside (Not referring to betting here) for every Sachin’s match in the last 15 years of his career and similarly at the same time if you had put money in equities instead of trying to time the market, then the results would have been excellent and you would have been laughing your way to the bank. (Also read - Quick buck for lazy investors. Here's how!)

The markets are volatile but it’s the rational investor who will reap the rewards of this volatile period. The dance of stock prices and NAVs might be seductive but it does you no good besides giving you a higher level of anxiety. I am confident this is not why you invest and the few good reasons to invest is to achieve your goals, protect the purchasing power of your money, grow your wealth and leave a legacy for the next generation.

Here are five key ways how you could cope with market volatility. By following these, we can keep an eye on the bigger picture and ensure that you don’t lose sight of long-term goals.

1. Don’t panic

It’s very tempting to “throw in the towel” and sell investments. In reality, that is most likely to be the exact moment to buy more. When everybody is selling, you should be buying. Intellectually, we know that, but emotionally, it’s difficult. But it's important to override our emotions and do what is in our best interest.

If you feel constantly worried about the ups and downs of the market, I would suggest taking a walk on the beach and spending some time introspecting, reflecting on issues that are important to you. If that does not help, then one can always go and seek help of a qualified financial advisor. If that too does not help, park your money in FDs, Bonds, Postal Schemes or under a mattress and hope that it will reap enough to protect your lifestyle, post inflation and taxes. (Also read - Low on risk? Here's how to earn better returns)

2. Invest regularly

The stock market is the only place where people buy less when it “is on sale.” The markets will, of course, come back. And the best way to take advantage of this is to invest regularly, in a systematic manner in various investments, so that one can automatically buy when the market dips.

3. Control expectations

We cannot control how the markets behave but we can control how we behave and our expectations of it. World over, equities as an asset class has given around 6-7% returns ahead of inflation, which is around 12 % assuming an inflation of 6 %. Though it cannot be said what returns to expect in the next 6 months to a year, equities have the potential to deliver reasonable rates of 12% over the next 10, 20 and 30 years. No doubt that there will be down turns in some periods but long-term averages can comfortably be around 12 %.

4. Understand the realities of Capital markets

Stock market is not a place where you can make a quick buck like the people who bet on matches and horse races. Just like 99 % of the gamblers lose, so will you if you do not adopt a disciplined approach to investing, have reasonable expectations from your investments, and do not understand the risks you are taking. Futures & Options might sound tantalizing but losses can be 100% here.

As a rule, any money that you may need in 1-2 years should not be invested in equity and at the same time, any money that you do not need for the next 15-20 years should be invested only in equity. Do not let your emotional interests override your economic interests. The key lies in identifying Sachin Tendulkar when it comes to investments and having a control on your emotions. (Also read - How to profit from Mutual Funds?)

5. This too will pass

Always keep an eye on the bigger picture. We are living in a time when India is displaying great economic prosperity. Favourable demographics, outsourcing, consumption, innovation, and political stability to a certain extent will continue to enhance the standard of living throughout India. This will keep the economy growing, profits increasing, and that will eventually get reflected in higher stock prices.

Charles Ellis noted, “Stay invested through the rough times. That's the only sane way to be there so you will enjoy the great and good times.”

The lesson to be learnt is, “Don’t let short term performances of equities determine its long term average."

Art of investing in falling markets

Each investor, I repeat each investor that I spoke to told me that he or she was in the market for the long-term at least for five years. However, its only a month from May 10, 2006 when the market touched its highest and the very same investors have sold out or are at the brink. Some have even incurred huge losses.

This situation reminds me of French moralist, Joseph Joubert’s words, “When you go in search of honey you must expect to be stung by bees”. Translated into the context, it would mean that if you enter the stock market, you should be willing to withstand volatility.

Lets get a perspective. The index has risen by 81.9%, 40.5% and 55.7% respectively over the last three years. What does this translate into? An investor who had invested three years back would have made an absolute return of over 377% on his capital. A two year old investment would have grown by 197%. Of course a one year old investment would grow by 81.9% (the same as the index).

These are the index figures. Even a run of the mill equity scheme has outperformed these numbers. And in spite of this, we cannot take a 22% fall? I know, since the bases are different, the 22% actually translates into over 40%. Still in the light of the past returns, it isn’t as bad as the media makes it out to be.

The reasoning is simple. Over time, money chases earnings. In the stock market, corporate earnings alone are omnipotent. Nothing has changed in the span of a month to make our erstwhile blue chips fundamentally unsound. In other words, the index fall is not linked to corporate fundamentals. Corporate earnings will still grow at a healthy pace of 14% to 16% if not at the previously estimated 22% to 25% YoY. Which basically means that this is the minimum net return that an investor would get out of his investment over a period of time. Of course, barring short-term volatility.

Also, it’s a good thing that the correction, as it were, has come so fast, so soon. Further downside potential here on is limited. Even if the market were to fall to 7500 levels (worst case scenario), it means a fall of around 17% to 19% here on. Remember this is on a worst case basis. Chances are it won’t go that far.

However, no one has seen what tomorrow brings. Though it’s a question of when and not if, no one can say when the market will recover back to its earlier levels. It may take three months or six or even much more. But know that just like night follows day and day follows night, markets will rise and fall only to rise again. Money can be made and lost depending upon how you play the ball. Not keeping the eye on the ball and instead trying to play the situation is like trying to put handcuffs on an octopus. There are simply too many factors both global and local that affect the valuations and timing the same is a lost cause.

Instead invest regularly on the way up and on the way down. More importantly on the way down. There is also another very important benefit in investing on the way down. It helps you prevent a situation of having invested at the medium term peak.

Have a look at the following table :

Date	Units	NAV	Amount
18-May-06	6000	50	300,000
17-Nov-07	6000	60.23	361,360
Rate of Return			13.20%

The example assumes that a lumpsum investment is made on the 18th of May when the market is almost at its peak. After which it falls and it takes all of 18 months to recover. The NAV at the beginning is Rs. 50 and the NAV after 18 months is Rs. 60.23 (an absolute rise of around 20% overall of 18 months). The rate of return works out to 13.20% p.a.

Now, if the same investor, instead of investing at one time, had spread his investments over the period, the following would be the result.

Date	Units	NAV	Amount
18-May-06	1000	50	50,000
17-Aug-06	1111.11	45	50,000
17-Nov-06	1388.89	36	50,000
17-Feb-07	1207.73	41.4	50,000
17-May-07	1050.2	47.61	50,000
17-Aug-07	954.73	52.37	50,000
17-Nov-07	6712.66	60.23	404,281
Rate of Return			39%

Notice that the NAV steadily falls for the first six months of starting the investment. This will happen in a falling market. However, the investor has kept his investment amount constant.

After a fall of almost 28% (from Rs.50 to Rs. 36), the trend reverses and the market starts rising again and so does the NAV. After 18 months, it reaches Rs. 60.23 just like in the previous example. The total invested amount over the 18 month period is the same --- Rs. 3,00,000. However, the rate of return has jumped to 39%!!

Does your investment style belong to the first table or the second? Answer the question honestly to yourself. Throughout history, smart investors have recognized a fall in valuations as an opportunity to buy cheap. This fundamental principle never changes. To put it differently, it is the darkest before dawn. Its up to you to benefit from this darkness. The question is are you up to it?

Choose an investment as you would choose a bride

The market is a roller coaster and let know one tell you otherwise. In the short term the market outlook may seem uncertain due to concerns on oil prices and slow down on FII inflows. But on the longer horizon Indian markets look very good. The government has been making conscious business friendly policies; the fiscal deficit too is getting under control. India continues to be one of the fastest growing economies in the world. These factors coupled with many others are ensuring India’s position as a global investment destination. To grow personal capital from India’s growth one has to choose the correct investment avenue. And choosing an investment avenue is like getting into a marriage, so do it wisely. (Check out - Risk a little and Gain a whole lot)

Choosing between the plentiful available mutual funds and schemes is not easy. A well thought out and well-planned decision is one that will bear fruits in the long run. Thus a structured approach to fund selection with a systematic checklist to achieve it is of utmost importance. Even though there are many available methods of product comparisons, one doesn’t want to be weighed down by all of them. Dwelling into too many numbers, will only lead to further confusion. Therefore only a few areas of comparison are of true importance and will be comprehensive enough to produce a thorough comparison. (Also read - The ABC's of profiting from your Mutual Fund)

Portfolio
Portfolio is very important while comparing schemes. Even though some of the underlying stocks in portfolios could be similar, most portfolios have differing mandates and investment philosophies. As a result it is rather important to understand the stance the manager has taken while building his scheme portfolio. The portfolio will not only determine the future outcome of your investment but will also tell you how risky the product is and hence if it is appropriate for your appetite. For example, an equity scheme, which invests in large cap companies, could be safer than one that invests in mid or small cap companies. The portfolio for debt instruments is determined on duration of securities. A high duration, high return investment is potentially volatile and risky; while a short duration investment Portfolio is less risky. This is where we come to the next parameter of comparison - Risk. (Read more - Mutual Funds: Your best personal Portfolio Manager)

Risk
In today’s scenario, investments that generate meaningful post tax; post inflation returns have risks attached to them. These are market risk, credit risk, government policy risk etc. At this point one has to understand how much risk he is willing to take in order to generate higher return. The rule of thumb is that the more risk one is willing to take the better the returns potential. The measurement for risk to return is known as Sharpe Ratio. The higher the value, the better the risk attached to the scheme is managed. A volatile investment can also be very risky. Thus this aspect must also be quantified. Standard deviation will help us understand the volatility of a scheme vis-à-vis its benchmark. Be aware a riskier investment is not always better and a sure fire way to generate superior returns.

Performance comparisons
These are the most favored methods of investors and amongst the easiest. Performance numbers are available in plentiful. But performance is only measured in hindsight, and can never be guaranteed in the future. Also performance can only be compared across similar categories of funds. For example, performance or return comparison between an equity scheme and a debt scheme should never be done. It must be kept in mind that comparison happens only between similar funds. A large cap fund should be compared with another large cap fund and not a mid cap fund. Thus compare apples to apples only. Performance and return comparison should be conducted usually when one has decided on the above-mentioned factors like risk and product category.

Fund management and Institutional backing
Since trusting your hard earned savings to some one can never be easy, it is important to evaluate their money managing capabilities. The markets are a game of understanding numbers and involve immense skill to generate growth from these numbers. Only a very capable person with a lot of experience can generate capital appreciation in today’s confusing market swings while managing risk.

Investment horizon
It is very important to determine investments based on one’s time horizon viz equity typically being volatile should be considered for investment horizon of 1 to 3 years. While the short term debt schemes should be considered for investment horizons of up to 1 year.
It is therefore important to invest with a fund house with a good track record. It is also important to give due weightage to the quality and track record of the spouses of the fund. After evaluating these parameters and choosing a scheme one can be reasonable sure that the investment they are going into is the right one. At this point I would like to stress, that any of these parameters could only be a guiding star and not a guarantee for the future. Choosing an investment avenue is like getting into a marriage, so do it wisely. Happy Investing!

4 steps to simplifying investing in MFs

Well, here is simple 4-point formula to help invest at least a large part of your corpus without many hassles.

Step 1: Analyze yourself
The most basic rule of any investing is that you must invest keeping in mind your financial profile.

Each one of us has a unique financial profile. Accordingly our investment pattern will also be unique. Hence, we must never invest based on where others are investing.

Therefore, as the 1st step you need to design your investment plan taking into account your financial objectives/needs; the time period you can remain invested; and how much risk you can take with your money.

Step 2: Choose the type of fund
Having defined your investment needs, risk appetite and time horizon, decide how much money will go to which type of fund. As mentioned earlier, there are a wide variety of funds. But broadly speaking you can use the following simple strategy :

Short-term money: The money which you may need within 6 months should go to liquid or short-term floating rate funds.

Medium term money: The money which you need within 1-3 years should go to MIPs (which invest about 10-20% in equity) and Balanced Funds (which invest about 65-70% in equity). Or you can buy a suitable mix of 100% equity funds and Fixed Maturity Plans/Debt Funds.

Long term money: The money which you don’t need for at least 3-5 years should be put in large-cap/diversified/index funds (about 50-60%), mid/small-caps (about 25-35%) and sector funds (10-15%). You can skip sector funds if your risk appetite is not high.

Step 3: Choose the specific funds
Top performers keep changing from year to year. It is impossible for anyone to predict which will be the top performer next year. Having said that, there are funds, which have consistently delivered above average returns. This is the set of funds, which should be your target.

• Best Funds to Buy

You have, in step 2, already shortlisted the ‘type’ of funds you should invest in. Now choose the top 5-7 funds amongst each particular type.

Just make sure that you are suitably diversified across fund houses too, by ensuring that you don’t choose too many funds from the same AMC.

Step 4: Which option is better
The basic returns from the fund will be same irrespective of the option you choose. However, the post-tax returns can be different. To keep things simple, just remember three things

1. Whatever be the fund, just opt for Growth Option if your holding period is more than one year.
2. If you plan to invest for less than 1-year in an equity fund (though this is not recommended), opt for Dividend Reinvestment.
3. If you plan to invest for less than 1-year in a debt fund, opt for Dividend Reinvestment if you are in the higher tax brackets.

I am not talking about Dividend Payout here because in most cases you don’t depend on dividends to take care of your daily needs. Money coming in through the dividend is just a psychological comfort.

Follow this 4-step process and you will be able to suitably deploy your money in the ‘right’ funds and avoid getting into any ‘wrong’ ones. Note that here ‘right or wrong’ doesn’t necessarily mean that the funds are ‘good or bad’, but only whether they match your profile or not. This will help you to achieve your financial objectives safely and surely.

Tired of your Savings Account?? Try this!!

ave some spare cash languishing in your savings account, but don't want to block it in a fixed deposit or risk an investment in shares?

A cash fund could be your answer.

Cash funds are known as ultra short-term bond funds or liquid funds that invest in fixed return instruments of short maturities. Their main aim is to preserve the principal and earn a modest return. So the money you invest will eventually be returned to you with a little something added.

Of course, you will not get the spectacular returns of an equity fund. But you will not face the threat of your investment being reduced to nothing.

• Why is my fund's NAV so low?

1. Liquidity: Savings account wins

How easily can you access your money? A cash fund falls between a savings account and a fixed deposit.

If you put in a request for redemption (sell your units), the cheque will be dispatched to you the very next day.

If you opt for the Electronic Clearing System, your redemption amount will be credited to your bank account directly the next day.

The only drawback is, you do not have the instant advantage of going to an ATM and making a withdrawal.

• Why an FMP is a good investment

2. Safety: Savings account wins

Cash funds are definitely not as risky as other types of mutual funds but that does not mean they are risk-free.

All mutual funds are subject to market risks and cash funds are no different. But they are relatively safer than the rest.

They are not guaranteed return products, like fixed deposits or the interest on savings bank accounts.

Though rare, you will find a few sporadic instances of funds delivering negative return in a month.

But it is highly unlikely that your principal amount will get eroded.

• Dividend payout or reinvestment or growth scheme?

3. Returns: Cash funds win

Though returns are not guaranteed as in a bank deposit, there is little risk of not earning interest, since these funds invest in very short-term investments with negligible risks.

Since they came into existence, this category has provided a little more interest as compared to the short-term bank deposit.

At present, cash funds' one-year trailing return (gains over a year) is an average 4.61% -- about 1.1% more than what savings accounts offer.

• The best funds may not be the safest

4. Performance: Cash funds win

Cash funds cannot be expected to deliver large returns. However, last year, when medium-term bond funds earned around 1%, the cash funds earned 4.3%.

Cash funds managed this as they mainly invest in instruments that mature quickly. When interest rates rise, these securities do not fall as much as long-term securities do. This is why:

~ When interest rates rise, fixed income investors are hurt because their money is locked in at a lower interest rate.

~ When interest rates rise, bond prices fall because the interest rate on the bond is lower than what is being offered right now. So, fewer people want to invest in it. As the demand for the bond falls, its price falls (just like it does for shares).

This will also affect the Net Asset Value of a mutual fund that has invested in these bonds.

• Why has my fund not declared a dividend?

When should you invest in a cash fund?

Only when you have surplus money in your savings account.

Remember, this is not another investment avenue. This is just a place to park your money for short periods of time.

Don't need the money for a few weeks or a few months? Then consider such funds.

Since most funds do not charge either an entry or exit load, you really don't have much to lose.

• Why you should watch over your mutual fund

Making the right pick

It is not easy to choose an ideal cash fund. Selection criteria on the basis of portfolio and performance are of little use here.

There could hardly be any difference between the way two cash funds invest. Also, the difference between the returns of the leaders and the laggards are a fraction of a percent. Therefore, you cannot make a decision on the basis of returns.

The pedigree of the fund manager is also not too significant here.

Hence, the only important indicator is the expense ratio since this can take away a significant chunk of the returns.

What is a Sector fund??

A mutual fund that limits its investments to a specific industry / sector like technology, banking or health care.

Since all investments are concentrated in a particular sector, the risk is much higher than a diversified equity fund (one that invests in various companies of different sectors).

If the sector booms, these funds can produce phenomenal returns. If the sector slumps, you could lose your money.

How to Compare Mutual Funds

Choosing a mutual fund seems to have become a very complex affair lately.

There are no dearth of funds in the market and they all clamor for attention.

The most crucial factor in determining which one is better than the rest is to look at returns. Returns are the easiest to measure and compare across funds.

At the most trivial level, the return that a fund gives over a given period is just the percentage difference between the starting Net Asset Value (price of unit of a fund) and the ending Net Asset Value.

Returns by themselves don't serve much purpose. The purpose of calculating returns is to make a comparison. Either between different funds or time periods. And, you must be careful not to make a mistake here. Or else, you could end up investing in the wrong funds.

• Invest in various funds, not one

Absolute returns

Absolute returns measure how much a fund has gained over a certain period. So you look at the NAV on one day and look at it, say, six months or one year or two years later. The percentage difference will tell you the return over this time frame.

But when using this parameter to compare one fund with another, make sure that you compare the right fund. To use the age-old analogy, don't compare apples with oranges.

So if you are looking at the returns of a diversified equity fund (one that invests in different companies of various sectors), compare it with other diversified equity funds. Don't compare it with a sector fund which invests only in companies of a particular sector.

Don't even compare it with a balanced fund (one that invests in equity and fixed return instruments).

• Why has my fund not declared a dividend?

Benchmark returns

This will give you a standard by which to make the comparison. It basically indicates what the fund has earned as against what it should have earned.

A fund's benchmark is an index that is chosen by a fund company to serve as a standard for its returns. The market watchdog, the Securities and Exchange Board of India, has made it mandatory for funds to declare a benchmark index.

In effect, the fund is saying that the benchmark's returns are its target and a fund should be deemed to have done well if it manages to beat the benchmark.

Let's say the fund is a diversified equity fund that has benchmarked itself against the Sensex.

So the returns of this fund will be compared vis-a-viz the Sensex.

Now if the markets are doing fabulously well and the Sensex keeps climbing upwards steadily, then anything less than fabulous returns from the fund would actually be a disappointment.

If the Sensex rises by 10% over two months and the fund's NAV rises by 12%, it is said to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have underperformed the benchmark.

But if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark.

A fund's returns compared to its benchmark are called its benchmark returns.

At the current high point in the stock market, almost every equity fund has done extremely well but many of them have negative benchmark returns, indicating that their performance is just a side-effect of the markets' rise rather than some brilliant work by the fund manager.

• The best mutual fund scheme for you

Time period

The most important thing while measuring or comparing returns is to choose an appropriate time period.

The time period over which returns should be compared and evaluated has to be the same over which that fund type is meant to be invested in.

If you are comparing equity funds then you must use three to five year returns. But this is not the case of every other fund.

For instance, cash funds are known as ultra short-term bond funds or liquid funds that invest in fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. So the money you invest will eventually be returned to you with a little something added.

Investors invest in these funds for a very short time frame of around a few months. So it is alright to compare these funds on the basis of their six month returns.

To understand these funds, read Tired of your savings account? Try this.

Market conditions

It is also important to see whether a fund's return history is long enough for it to have seen all kinds of market conditions.

For example, at this point of time, there are equity funds that were launched one to two years ago and have done very well. However, such funds have never seen a sustained declining market (bear market). So it is a little misleading to look at their rate of return since launch and compare that to other funds that have had to face bad markets.

If a fund has proved its mettle in a bear market and has not dipped as much as its benchmark, then the fund manager deserves a pat on the back.

• Why you should watch over your mutual fund

Final checklist

Here are some quick pointers when comparing funds.

- Compare funds that are similar. For instance, compare Alliance Equity with Franklin India Prima. Both are diversified equity funds. Similarly, compare UTI Auto with J M Auto, both being auto sector funds. Or Birla Midcap with Magnum Midcap, both being funds that invest in mid-cap companies.

Don't compare the performance of Alliance Equity with UTI Auto or even Alliance Equity with Birla Midcap.

- When returns are compared, make sure that the time period is identical. Or else, you may be looking at the one-year returns for one fund and the three-year returns for another.

For instance, if you were told that the return of HDFC Equity was 59.72% and that of Franklin India Prima was 61.74%, it would be misleading.
Because the return stated of HDFC Equity is a one year return while that of Franklin India Prima is the three-year return.

A good comparison would be:

Returns	Franklin India Prima	HDFC Equity
1 year	81.13%	59.72%
3 year	61.74%	47.52%
5 year	39.58%	27.04%

- Compare a fund with it's own stated benchmark, not another. For instance, Fidelity Equity, Escorts Growth and BoB Growth are all diversified equity funds with different benchmarks.

Fidelity Equity - BSE 200
Escorts Growth - S&P CNX Nifty
BoB Growth � Sensex