There are 1000 of Mutual Funds in India. How to choose the Mutual Fund is difficult. Can one choose the mutual fund based on one’s investing type? Outlook money has come up with list of equity funds based on investor types. What are the various investor types?

Too Many Choices: A Problem That Can Paralyse

In the past ignorance was due to lack of easily available information or facts on which to base conclusions. For example, it was thought that the world was flat due to lack of observable and verifiable facts. And conclusion,faulty one as we know now, was If you sail too far, you will fall off the edge. A wrong fact results in wrong conclusions which results in wasted or damaging actions with real world negative outcomes. As relevant data could be collected, of course, humans changed their conclusions, so today we know the Earth is not flat, though World is.

Today, we end up ignorant, but for the opposite reasons. We never reach a point where we have just enough information to make informed decisions. We have way too much information that sounds relevant, no mechanisms in place to provide checks and balances on what information gets distributed, no way to confirm most of what we hear.  In his 2004 book, The Paradox of Choice  Why More is Less, American psychologist Barry Schwartz argues that eliminating consumer choices can greatly reduce anxiety for shoppers.

Have you seen a kid in an ice-cream parlour which offers many types of ice-creams. He has to make a choice,would chocolate chip or mango cream be better?  His fear, he says, is that whatever he selects, the other option would have been better. So Does more choice give more freedom or we end up spending so much time trying to make choices?

Overchoice, also referred to as choice overload, is a term describing a cognitive process in which people have a difficult time making a decision when faced with many options. The term was first introduced by Alvin Toffler in his 1970 book, Future Shock. The phenomenon of overchoice occurs when many equivalent choices are available. Making a decision becomes overwhelming due to the many potential outcomes and risks that may result from making the wrong choice. Having too many equally good options is mentally draining because each option must be weighed against alternatives to select the best one.

Too Many Mutual Funds 

With over 1000 schemes , finding mutual fund scheme to invest is an onerous task. With several hundreds of schemes on offer, mutual fund investors are spoilt for choice. There are large cap, small cap, equity, debt, gold, ETF, sector based funds such as tech, financial, retail or energy to commodities to foreign indexes. The sheer number of mutual fund schemes on offer  can intimidated anyone. It’s like the buffet in the marriage party which has everything from Chinese, Chaat to Mexican, Samajh hi nahin aata khaoon kya aur choodon kya? Bhai pet tu ek hi hai na. Googling “How to choose a mutual fund” gives me more than million results (that too in 0.25 seconds). One is overloaded with information about style of fund, benchmark returns,category returns, fund manager, size of fund,risk parameters, such as standard deviation and beta, parameters for risk-adjusted return, such as Sharpe ratio and Treynor ratio. One feels like one is drowning in information. Our article Rantings of a Mutual Fund Investor talks in a light humorous way of the decisions that  a  Mutual Fund Investor  faces Meri investing ki thinking mein itne ched ho gaye hai, itne ched ho gaye hai,ki hum to confuse ho gaye hain ! Kya kare kya na kare yeh sun lo mere bhai , Koi to bataa de iska Hal o mere bhai. 

Choosing Mutual Funds based on Investor Type

Outlook Money had come out with the list of best funds in 2000. They pruned list of the best funds resulting in the Outlook Money 50 or OLM 50 funds s offered a fair bit of choice, which was diligently updated each year. Realising  lesser-the-better  approach would work for a mutual fund investor resulted in birth of the Elite list in Jan 2015. The OLM Elite aims to concentrate investors attention on a sensible number of high quality funds.   The Elite list is perennial work in progress to ensure the reader has an updated and relevant list of funds to pick from. Outlook money will regularly scan the universe of funds for each category to not just recommend funds, but from time to time, also suggest exit from funds Please note that the list of Mutual Funds based on Investor type is an investment aid and does not constitute advice or a personalised recommendation to invest.

The Elite list solves the investor’s problem by categorising funds into groups that meet their investment needs. As a first step, Outlook Money defined four types of investors:

• The Beginner : New to investments and needs to experience investing with minimal risks. The funds recommended for a first-time investor are a Mix of tax-saving and balanced funds.
• The Safe player : Cautious with a 3-5-war investment time-frame :  They look for low risk which is why funds from the large and mid-cap categories find place here
• The Ultracool investor with a long-term aim : Moderate returns expectation and has a marginally more than five-year investment horizon
• The Adventurer : Seeks high returns and can tolerate higher degrees of fluctuation with returns. Mostly funds from the mid- and small-cap segments find place here for the high-risk-reward proposition.

Funds  based on Investor Type

OLM Elite funds based on the Investor Type from Apr 2015 Edition of Outlook Money are as follows

Mutual Funds for Beginner

Mutual Fund for Safe Player

Mutual Funds for Safe Player

Mutual Funds for Ultra Cool 

Mutual Funds for Ultra Cool

Mutual Fund for Adventurer

Mutual Funds for Adventurer

Bemoneyaware take

 Often we just end up collecting and comparing information. We look for that 1-3% extra gain and lose on +10% gain.  Choose a fund with good pedigree, well managed and which has preferably seen many market cycles.  As Mr Amitabh Bachchan reminds us lines from his fathers book Madhushala

Dr Harivansh Rai Bachchan’s Madhushala

Related Articles:

• Why Mutual Funds in India are not popular
• How to Choose Mutual Fund : Ratings, Fund House,Size
• Growth and Dividend Option in Mutual Funds
• Investing in Equities: Stocks vs Mutual Funds
• Investing in Mutual Funds for Beginner

Do you think Choosing Mutual Fund by Investor Type is a good idea? How do you choose your mutual funds? Do you get swamped by lots of information?