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Portfolio Upgrade Tool Enables Investors To Switch To Best Performing MFs

Author: Kumar Shankar Roy/Wednesday, July 15, 2020/Categories: The Finapolis Conversation

Portfolio Upgrade Tool Enables Investors To Switch To Best Performing MFs

Investors put their hard-earned money in mutual funds (MFs) to achieve long-term financial goals. They think investing in a fund is enough. Unless your money is invested in the right fund, your money will not be working as hard as you. Unfortunately, many realize their folly when it is too late. Approximately Rs11 lakh crore of fund money is stuck in less than 4-star-rated funds. It is important that these investors let go of their emotions and don’t stay invested in these poor-quality funds, says Omkeshwar Singh, head, RankMF, Samco Group, to Kumar Shankar Roy in this week’s Finapolis Conversation. If an investor has lower-rated funds, it has a major impact on loss of capital itself, and also the compounding impact is huge in the long run. Omkeshwar Singh understands this area very well, thanks to his overall experience of nearly two decades in the broking and mutual-fund industry. Prior to joining Samco Group, he was heading- BSE STAR Mutual Funds Market Segment (Bombay Stock Exchange Ltd) for over five years, where he was managing India’s largest mutual funds distribution infrastructure. Read on to know more.

If an investor has lower-rated funds, does it really matter in the long-term?

Yes, it has a major impact on loss of capital itself, and also the compounding impact is huge in the long run. Therefore, it is better to switch to better quality funds so that loss of capital is first recovered and changes of decent returns increases.

Tell us about your new mutual fund portfolio sanitization tool?

RankMF, a Samco Group brand, has announced the launch of a new and superior portfolio up-gradation tool, ‘SmartSwitch’. RankMF’s SmartSwitch is a revolutionary mutual fund portfolio evaluation and recommendation tool that helps to analyze your existing mutual fund portfolio giving a quality score on various parameters like Quality of existing mutual funds, Category of mutual funds, Over or under exposure to a specific fund or category and Over or under diversification. SmartSwitch uses RankMF’s proprietary research and rating engine to recommend switching of poor-performing schemes with high quality recommended schemes.

How big is the problem you are trying to solve with the mutual fund portfolio sanitization tool?

Approximately Rs 11 lakh crore of AUM (Assets Under Management) is stuck in less than 4 star-rated funds. It is important that these investors let go of their emotions and don’t stay invested in these poor-quality funds. They should shift their investments to good-quality funds to avoid further losses.

If you are someone, who has invested money with great discipline and still hasn’t made gains over a long period, means there are great chances that you have invested your money in the wrong mutual funds. SmartSwitch will help investors get a quality score for their portfolio, get specific recommendations, and then will allow them to switch poor-quality funds to better-recommended funds.

In the past one year, 89 per cent of AUM in the Large-Cap Category has given negative returns of five per cent to 22 per cent. As much as 86 per cent of AUM in the Multi-Cap Category has given negative returns of five per cent to 27 per cent, Almost 99.5 per cent of AUM in the Small-Cap Category has given negative returns of five per cent to 26 per cent. Also, 82 per cent of AUM in the Mid-cap Category has given negative returns of five per cent to 18 per cent.

The above data statistics clearly emphasize starting your new mutual fund’s investments in the right funds.

Schemes with quality portfolio and high margin of safety excel in the long run as well, past performance had no bearing! RankMF system completely ignores the past performance and rates and ranks based upon the Quality of the Portfolio and the margin of safety.

How do investors select the right funds and at the same time get rid of bad funds?

Choosing the right funds is the main objective when investing in Mutual Funds. The funds can in turn give negative returns after some time and investors can end up having an over-diversified portfolio. SmartSwitch is a revolutionary solution for these investors. They can simply upload their eCAS, check their portfolio score, and switch their existing investments from poor quality or non-performing funds to a recommended quality mutual fund portfolio. Based on that, your Mutual Fund portfolio is given a quality score and recommendations to switch on these parameters with the intent to increase the overall portfolio score by 20-30 per cent.

RankMF provides the only mutual fund research, which does not rate and rank mutual funds on past performance. RankMF takes into consideration a variety of factors into consideration and over 20 million data points such as expense ratios, standard deviation, beta, market valuations, and multiples, portfolio holdings and diversification/concentration of portfolio, the cash ratio of a fund, size of the fund, the predicted yields and we can go on and on. However, one of the most important factors is the actual portfolio quality of holdings since that is what is going to deliver investor returns.

Does the switch happen at the fund level or portfolio level?

The evaluation happens at a portfolio level where the quality of all mutual fund schemes present in the portfolio is reviewed and based on that an overall portfolio score is assigned. An investor then has the choice to switch at fund level as they can unselect the funds they do not wish to switch. But not switching to recommended funds could impact the improvement score of the portfolio.

After you have sanitized the MF portfolio, is there any assurance that the portfolio will now do better than others?

There is no assurance. The complete objective is to have a better quality portfolio so that the chances of loss of capital are minimized to the extent possible and to provide an opportunity to the portfolio to perform better with quality holdings at a high margin of safety.

How are the funds transferred for SmartSwitch process?

As a SmartSwitch is executed, the money gets through exchange first and then gets settled through an exchange pool. The redemption amount from poor quality funds will be the new amount invested in the quality mutual funds. The new investment amount will be rounded off and the balance would be credited to your ledger automatically.

Why are few funds not switched within the same category?

SmartSwitch is executed to increase the quality of the funds you hold in your portfolio. Hence, to give you the best outcome from the process, SmartSwitch is executed at different levels. A basic switch is where poor quality funds are switch with better funds in the same category.  An advanced switch is where poor quality funds move to better funds in a different category, but the same asset class. In case, you wish to switch the fund in the same category of schemes other than the ones recommended in the advance switch you can do that too. Good Mutual Fund schemes will not be switched. Schemes will not be switched where minimum investment threshold not met and redemption is not allowed.

Is SmartSwitch possible between different AMCs?  What is the mode of investing when using SmartSwitch?

Yes, SmartSwitch facilitates switching between all AMCs present. The accumulated corpus from the existing poor quality fund will be invested in a lump sum mode to a good quality fund with SmartSwitch.

Will the existing SIP mandate also switch?

No, only the accumulated corpus will be switched, as per regulations you would need to start a SIP in the good quality fund switched with RankMF by stopping the existing SIP in the poor-quality fund.

Does an investor need to be a RankMF subscriber to get access to this tool?

Yes, the investor must register with RankMF to evaluate the portfolio. As an introductory offer, it is completely free.

A few days ago, one of the top brokers also launched a Mutual Fund Optimizer for Indian investors. How does RankMF’s SmartSwitch differ from that offering?

The difference is in the heart of the offerings i.e. SmartSwitch uses RankMF’s proprietary research and rating engine that has completely taken out subjectivity and manual intervention. It runs a Giga trading engine leveraging AI (Artificial Intelligence) & ML (Machine Learning) which churns more than two crore data points daily - both fundamental as well as technical - to let us know Quality of the Stocks, Margin of Safety i.e. value for money, etc.

We are the only platform that evaluates mutual funds based upon the quality of holdings in the portfolio and margin of safety and completely ignores the past performance and Bell Curve methodology.

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