mutual fund portfolio

Rule no. 9 – Character Counts

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CHARACTER COUNTS - MUTUAL FUNDS

A few months ago, I wrote a post on 8 rules to build your mutual fund portfolio. These 8 rules are laid down by John C Bogle, the renowned founder of the Vanguard group, in his book “Common Sense on Mutual Funds”. These rules apply to those who would want to select non-index, actively managed funds.

The 8 rules to build a mutual fund portfolio are:

  1. Select low cost funds
  2. Consider carefully the added costs of advice
  3. Do not overrate past fund performance
  4. Use past performance to determine consistency and risk
  5. Beware of stars
  6. Beware of Asset Size
  7. Don’t own too many funds
  8. Buy your fund portfolio and hold it

In the post, I had mentioned about one more rule which I had promised to share on a future date. Here it is.

Rule #9 – Character Counts.

Bogle wrote a book called “Character Counts“, which contains 25 of his speeches that he gave at Vanguard. They are an insight into how Vanguard was built to grow into the largest ‘no-load’ mutual fund group in the world.

Let’s understand why character counts in selecting your mutual funds.

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How to build a winning mutual fund portfolio? (plus a Sample Portfolio)

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mutual fund portfolio

You and I face the same problem

There are more than 500 mutual fund schemes in India. They come in a variety of investment styles, investment objectives and options. In fact, the total number of mutual fund options that you have to choose from turn out to be more than 3000. It’s baffling.

How do you go about choosing the best ones for your portfolio that will help you meet your goals?

Given the wide range of choice, many well-meaning organisations and individuals have come up with ways to help you select the best mutual funds that channelise your savings with an intent to grow them at a reasonable risk.

This help comes in the form of ratings, rankings and opinions. Unfortunately, none of them makes your job to select mutual funds absolutely easy. At best, they act as first level filters. You still have to make choices from the reduced list of options.

What to do?

Which funds should you pick? How do you build a decent portfolio that puts your money to work while you focus on what you are good at and growing your income?

As I said, I face this issue too. And I worked to solve it for myself.

The result was a small eGuide, which takes you through the entire process of building a winning mutual fund portfolio.

I use, as my guide, my experience of helping over 500 investors, small and big, to invest their savings in a mutual fund portfolio that has helped them move closer to their financial goals. 

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John Bogle’s 8 Rules to build your mutual fund portfolio

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John Bogles 8 rules to build a mutual fund portfolio

Who is John Bogle?

Back in 1975, the world’s first index mutual fund was started with the guiding principle of “trusteeship”. It sought to put the investor first and tilt the scales of investment rewards towards the investor. Not just that, this organisation has established the norms of running a trusteeship driven organisation.

The fund house, as would be a familiar name to you, is known as Vanguard. As of today, Vanguard is the largest no-load mutual fund in the world managing trillions of dollars for its unit holders.

I want to bring your focus on this man who built Vanguard, its founder John C. Bogle.

John Bogle has studied mutual funds in-depth since 1949, when he began his senior thesis at Princeton University before joining the industry in 1951. He was named as one of America’s four financial “giants of the twentieth century” by Fortune magazine.

He is a prolific author and has penned his wisdom on investing in books such as Common Sense on Mutual Funds – New Imperatives for the Intelligent Investor.

Mr Bogle is a hard-core believer in indexing or buying index funds. In his findings (supported by data), a broad market index fund will almost always beat an actively managed fund. This will primarily be a function of the costs that are loaded onto actively managed funds. He outlines his approach very logically in his book Common Sense on Mutual Funds.

However, for those who would still go the other way and choose actively managed funds, he has shared 8 rules to build a mutual fund portfolio. These rules are based on the same strategies that help index funds to succeed.

While the rules have been explained in great detail in his book Common Sense on Mutual Funds, in this post I bring to you the essence of these 8 rules.

While the context of these rules is in the US, I believe they would apply to any sensible investor building a portfolio to meet long-term financial goals.

All the 8 rules are listed below. To read a detailed explanation as also the India mutual fund context, you may want to download the full guide.

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Building MF Portfolio – Avoid these 5 mistakes!

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MF Portfolio - Mistakes to avoid in mutual fund portfolio

This is my MF portfolio – am I right?

I often receive reader queries on the blog stating their choices of schemes that should be a part of their winning MF portfolio. They then want to know if it is alright or any change is required.

I recently received another one. As I said this is not the only one. There have been several such in the past. So, this reader had been investing in the following funds and now wanted a ‘second opinion‘ if these funds continued to make sense.

Here is the list of fund scheme names with their options.

  1. ICICI Prudential Export & Other Services Fund  – Dividend
  2. SBI Pharma Fund – Dividend
  3. UTI MNC Fund – Dividend
  4. ICICI Prudential Value Discovery Fund – Dividend
  5. UTI Transportation & Logistics Sector Fund – Dividend
  6. Canara Robeco Emerging Equities Regular – Dividend
  7. Reliance Small Cap Fund – Growth
  8. MOST Focused Mid cap 30 Fund – Growth
  9. Reliance Pharma Fund – Growth

The reader was concerned that his portfolio had a loss, that is, the current value of the investments was less than the amount he had invested.

He also made it amply clear that he was looking for ‘maximum returns‘. He mentioned that it was his hard earned money, which to me means that he does not want to take a lot of risk.

And you know what – his retirement is only 5 years away!

This is a perfect textbook example of how one can make all the mistakes in one go.  I believe we all have lessons to learn here.

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