Banking sector fund is up 20% & IT sector Fund is down 20% & you want to invest, where will you?

_*Sunday ki Pathashala*_

_Knowledge is Power_

_*Financial Literacy Series*_

28-May-2023 

*Have you noticed that every time you invest in a new mutual fund, it disappoints you ?* 

_The reason is your fund selection process 🙂 99% of you'll select funds looking at the last 1 or 3 years of returns & bang, you have invited under performance!_

• Let me explain

• There are 2 styles of investing that fund managers largely use, Value & Growth

*(a)* Value - Its a style of investing where the fund manager buys stocks which she feels are available at a lower valuation / discount, as the market is not interested in buying them at that point in time.

*(b)* Growth - Its a style of investing where the fund manager buys stocks which may be at an expensive valuation / premium, but the fund manager believes the company is going to grow fast in the future & hence it is okay paying more to buy the stock today.

There is nothing right or wrong in both strategies. Over the next 10 years, both strategies will generate decent returns, but in the interim, one might underperform depending on the market cycle. You will invariable notice that when markets are expensive or are at high valuations vs. the average, the value theme will do very well then. As the markets are expensive & hence fund managers want to buy what's cheap & hence value stocks become the flavor & the theme out performs. Inverse is also true. At lower market valuations, growth strategy does well.

Now, markets move in cycles, 2-3 years growth investing will work & 2-3 years value investing will work. Whenever you pick the recent performing funds, you will pick all the funds, which would have followed that one strategy that worked. Now, after you invest, when the market cycle changes, the same funds will underperform 🙂

I'm not sure if I made it too technical, but let me simplify. Assume a banking sector fund & an IT sector fund. Banking sector fund is up 20% & IT sector Fund is down 20% & you want to invest, where will you?

- Kirtan Shah

Mutual Fund Investments are subject to Market Risk. *Consult Your Financial Advisor (Wealth Doctor) before Investing & Regularly for Portfolio Check-up...*

_"Sunday Ki Pathashala"_ is initiative by: -

_*Hitesh R. Pujara.*_

_*Baroda BNP Paribas Mutual Fund*_

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