One of the biggest parts of the service we offer our clients is fund selection. We do not just help you calculate how much you need to be saving, and which asset classes you should invest in; we actually recommend specific funds for you to invest in, and then we actually help you make those investments through our website and app.
So, it is important for us to explain exactly how it is that we are selecting the mutual funds in which we will be investing your hard-earned money.
Given the bias we have towards long-term investing, SmartRupee’s process first starts with selecting only the funds that have a demonstrated track record of long-term performance. We, of course, take our own advice of “past performance is no guarantee of future results” seriously, but that does not mean that past performance should not be a factor in determining in which funds to invest.
We eliminate from our consideration any funds that have been in existence for less than 10 years because we want to evaluate only funds that have been around long enough to have a long-term track record to assess.
Of those funds, we then begin parsing out which funds to recommend, focusing on the ability to do two things: generate high returns, and generate consistent returns. To that end, our proprietary recommendation algorithm focuses on two core metrics: historical performance, adjusted for extenuating factors, and ability to consistently beat a relevant benchmark index.
In other words, we are not simply looking for funds that offer the highest returns: we are looking for funds that demonstrate the ability to do so consistently.
Other factors in our model include the reliability of the asset management company, including past complaints of misconduct against them by the Securities and Exchanges Commission of Pakistan (SECP). Funds that are managed by companies with a tarnished record of complaints against them are excluded from consideration for our recommendation engine, even if they have performed well over the past decade.
We also diversify across categories, ensuring that our clients do not have exposure to a single asset management company. That means that for every asset category – equities, fixed income, pension funds, balanced funds, etc. – we will always recommend more than one fund managed by different asset managers to ensure a diversification of risk.
Two of the factors we use in making decisions on which funds to invest in – historical performance and ability to beat the benchmark index – are displayed as part of our recommendations page.
We select funds for our clients based on the needs for which they are saving and the amount of time that they have to save up for a particular need. Shorter investment horizons – five years or less – result in investments being allocated towards fixed income funds, mostly those invested in low-risk government bonds. Investment horizons of between five and ten years see assets allocated either to a balanced fund (which mixes equity, fixed income, and money market instruments) or to a customised allocation of equity and fixed income funds, depending on the client’s needs.
Longer term investment horizons – defined as 10 years or more – are invested in equity investments through high-performing, diversified equity mutual funds.
SmartRupee performs the fund selection on behalf of our clients, and we offer them a choice of both Conventional and Islamic fund options for each category of investment and each asset class.