There are 44 asset management companies in India and each company has launched many funds taking the total count of Mutual funds Schemes in India to around 2,600. Trying to understand each scheme individually is an impossible task. However, the task is made easier if you could divide the schemes into categories and sub-categories according to their investment characteristics.
Well, that is what SaveAbhi has done! We have taken a combination of investment horizon, risk appetite and return expectation to create broad categories of mutual funds. However, before I go into these categories let me first explain the meaning of these terms.
Investment horizon - investment horizons can range from short-term, just a few days long, to much longer-term, potentially spanning decades. For example, a young professional with a PF plan has an investment horizon that would span decades. However, a corporation’s treasury department might have an investment horizon that’s only a few days long. Typically a longer horizon allows you to take higher risk.
Risk Appetite - Your personal attitude to risk, your personal circumstances (How much are you willing to lose?) and your investments goals, timeframes and need for returns make up your risk appetite profile. This is quite difficult to gauge and you need to really think this through. Advisors can help you assess with questionnaires.
Return expectations - You can anchor your return expectation around a benchmark, benchmark plus margin or an absolute number
Saveabhi has taken these three factors and created various categories of mutual funds and given two to three options of funds based on past performance, quality of fund houses and fund manager etc. Each category would typically have the risk/return profile in the same band.
Let us quickly go through these categories
Saving account plus - Typically for less than one year, low-risk appetite and return expectations slightly above saving account rates
1 Year FD plus - Typically for 1 to 3 years, low-risk appetite and return expectation that is 1–2% higher than the FD rates
3 Year FD plus - Typically for around 3 years, low risk and return expectation that is 1–2% higher than 3 year FD rate
Retirement plan - 5 year plus, moderate risk due to equity/debt mix and aggressive returns
Blue Chip - 5 year plus, moderate risk but high and predictable returns
Emerging companies - 5 years plus, high risk but a potential for very high returns
India consumption story - 5 years plus, high risk but with high returns. Focused on consumer story which is benefiting from GST
Build India - 5 years plus, high risk but with high return. Based on India’s infrastructure build-up theme which is strong due to govt focus
Warren Buffet Style - 5 years plus, high risk but with high return. The theme is to pick value stocks across sectors and market caps. Multibagger pick
Balanced fund - 5 years plus, balances variable returns from equity with fixed returns from debt
The purpose of any fund classification system should be to help the investor match his own returns expectations and risk-taking ability with the type of fund that he is going to invest in. Saveabhi achieves this objective through this classification.
Now the investor needs to determine their position on the 3 parameters to determine the category and then chose one of the two to three fund options within each category
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