FundsIndia has come up with an interesting research report titled: The FundsIndia 5 Best Schemes in the History of Indian Mutual Funds.
In this report they have listed down 5 equity funds that have done well over very long periods of time, and have given a little history about them, how they made their money, and fund managing style.
The first question I had upon reading this title was how do you select the paramaters for such a report? Do you stop at returns or do you go deeper and look at other things as well?
Here are the five things that they chose to see:
1. Longevity: Funds that are at least 10 years old
2. Performance: Ability to deliver higher than benchmark returns consistently
3. Resilience: Ability to withstand market downturns better than its benchmarks
4. Stability: Consistency of fund management principles and personnel
5. Investment-worthy: Their recent performances have not caused any concern keeping them investment worthy even today.
I think these are all good parameters but in my opinion if you are evaluating hundreds of mutual funds you should describe these mathematically and then evaluate funds on them. For example, stability can be shown by the number of fund managers that a particular fund had since its inception. I don’t think they went to that level of detail although they have used numbers to evaluate the funds.
The next question I had was if you select 10 years as the cut off point – how many funds do you really have left, and in then within that how many would have a performance worthy of Â a second look?
To answer this I went to the following categories on Value Research and arranged the funds in descending order of their 10 year returns.
- Equity: Mid & Small Cap
- Hybrid: Equity-oriented
- Equity: Multi Cap
- Equity: Large & Mid Cap
There were two things that struck me from looking at these funds in this manner:
Sheer number and range: I was amazed to see the sheer number Â and range of equity funds that have done quite well over a 10 year period. The five funds that FundsIndia selected belong to 4 different categories according to Value Research and they are usually not the highest performing funds in that category for the 10 year period.
Difference between the 5 year and 10 year return number: The large number of funds that have returned over 20% returns for 10 years is simply mind boggling, but the same funds have pitiful returns over the last 5 years. This reinforces what most readers already know – the last five years have been bad for equity investors and no matter how good your mutual fund is – if the market doesn’t do well, how can the fund do well?
Given this background, while I think the report is useful and everyone should invest the ten minutes it will take to read the report, look at the fund names, and their story – I’m not convinced that you can call these five funds the best without a shadow of doubt, and indeed can you ever select five funds that you could call that?
Read the report here:Â The FundsIndia 5 Best Schemes in the History of Indian Mutual Funds.
Disclaimer: FundsIndia is an advertiser on OneMint.