While evaluating mutual fund schemes, often parameters like net asset value (NAV) appreciation, performance vis-�-vis peers and the benchmark index are considered. Discerning investors are likely to go a step further and evaluate the fund on the risk parameters i.e. its showing on volatility control (measured by Standard Deviation) and risk-adjusted return (measured by Sharpe Ratio).

However an equally important, yet often ignored parameter is the fund's adherence to its stated investment mandate and positioning.

Every fund offers (well, at least is required to offer) a defined investment proposition. Investors make investment decisions based on the same. For example, a fund could profess to be an aggressively managed mid cap fund, thereby qualifying as a high risk-high return investment proposition.

Hence, investors who wish to invest in a high risk investment proposition would typically consider adding the fund to their portfolios.

The trouble starts when fund houses decide to unilaterally alter a fund's positioning and in the process, leave investors in a lurch. For example, we have seen funds that were positioned as mid cap funds being transformed into large cap funds and vice-versa. Similarly, opportunities funds have been turned into large cap funds.

This is a rather unenviable situation for the investor. The fund is no longer the one that he intended to invest in and may not fit into his portfolio either.

So either he can continue to be invested in a fund that doesn't fit into his scheme of things or he could exit the fund and in the process bear an exit load (if any), for no fault of his.

Fund houses can get away with such indiscretion because of the inconclusive investment objectives. Every fund is required to have a stated investment objective, that is mentioned in the offer document.

Fund houses are known to pick investment objectives like "the fund aims to generate long-term capital appreciation", which convey very little and are open to various interpretations. Information like the fund's investment style and its likely investment universe are rarely included in the investment objective. In other words, the fund's investment objective and positioning are often divorced from one another.

Altering the investment objective entails taking a legal route i.e. necessary approvals need to be obtained from the regulator. Similarly, existing investors who don't wish to be a part of the fund in its new avatar, are also given the option to exit the fund without paying an exit load.

But thanks to the vague investment objectives, fund houses rarely have to take the difficult route. They simply change the fund's positioning (which despite being stated is not mandatory or legally binding). As some fund houses put it, the positioning is "off the record" and hence vulnerable to their whims and fancies.

Also the "alter the positioning" game isn't restricted to just the investments. We have seen investment philosophies being changed to make the most of market conditions as well.

For example, in rising markets, a fund house that claimed to have a "we don't hold cash; we believe in being fully invested at all times" philosophy, sang a different tune when markets fell sharply. The same fund house was busy patting itself on the back and informing everyone that holding a significant portion of assets in cash offered it a great investment opportunity when markets fell.

At Personalfn, we believe that the fund's investment mandate and positioning should be treated as sacrosanct. The same cannot be altered based on market conditions or the fund house's wishes. If there is a need to do so, investors must be given the option to exit the fund without bearing any exit load. We recommend that investors should steer clear of funds that fail to 'walk the line'.

The BSE Sensex closed at 13,909 points (up by 0.09%), while the S&P CNX Nifty was unchanged over the previous weekly close at 4,084 points. The CNX Midcap posted a gain of 0.64% to close at 5,194 points. These figures fail to reveal the volatility experienced in the markets over the week.

Thematic and sector funds ruled the roost in the equity funds segment. Kotak MNC (3.43%) surfaced as the top performer, followed closely by JM Auto (3.42%).

Schemes from Birla Sun Life Mutual Fund dominated proceedings in the long-term debt funds segment. DWS Premier Bond (0.58%) occupied the top position; Birla Sun Life Income (0.50%) and Grindlays GSec (0.48%) came in at second and third positions respectively.

BOB Balanced (3.61%) towered head and shoulders above its balanced fund peers. CanBalanced II (1.28%) and Sundaram Balanced (1.16%) also featured among the top performers.

Close-ended funds that invest in stocks from the mid and small cap segments, have been the season's flavour for a while now. We have already seen a number of such new fund offers (NFOs) being launched. Birla Sun Life Long Term Advantage Fund � Series 1 (BLTAFS1) is yet another addition to this list. A 3-Yr close-ended fund, BLTAFS1 professes to generate long-term capital appreciation, by investing in mid and small cap stocks. The fund defines mid cap stocks as those, which would fall in the market capitalisation range of the S&P CNX Midcap index.

Our advice for investors -- give the fund a miss for now; evaluate the fund's performance over the 3-Yr period and based on the same, consider making an investment in the fund, when in turns open-ended. Our rationale is fairly simple.

If investors have the option to add to their portfolios proven performers like Franklin Prima (48.4% CAGR over 5-Yr) and Sundaram Select Midcap (53.3% CAGR over 3-Yr), they would be better off investing in them, rather than investing in an untested NFO.

By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue -- Real Estate & You - please click here.