Best performing MF s – do you have them?

It always amuses me when I see people doing all kind of verbal and mathematical gymnastics in trying to decide which MF they should be investing in. Terms like “downside protection”, “Sharpe ratio” etc are spoken and written about with great enthusiasm, but unfortunately with little understanding of how MF’s really operate. You see the critical issue is this – holding stocks of an MF change over time, so there is little point in trying to make an analysis like you do for stocks. Not only is it a completely wasted exercise but it can lead or mislead you into buying the wrong MF too.

So what should you look at when you are considering whether to buy an MF for the long term or not. Well, while the risk adjusted returns sound an obvious kind of thing to look for, I believe much more in the absolute and relative performance of the fund over a period of time. For those who say they are happy if the MF of their choice meets their own return expectation my comment is simple – you never know what may happen in the future irrespective of your plans. Therefore, it makes a great deal of sense in maximizing your returns out of your investments. There is absolutely zero need to be loyal to your fund or fund manager – remember, they do not lose money if the market crashes but you do.

So from a performance point of view, these are the best MF schemes in the different categories. The source is ET Wealth, you can read more about it in this week’s edition.

Large-cap MF:

  • SBI Bluechip fund
  • Birla Sun Life Frontline Equity Fund
  • Birla Sun Life Top 100 Fund
  • Quantum Long Term Equity Fund
  • SBI Magnum Equity Fund
  • Invesco India Growth Fund

For all these funds 3 year returns are greater than 22 %, 5 year returns are more than 15 % and 10 year returns are similar.

Multi-cap funds:

  • ICICI Prudential Value Discovery
  • Birla Sun Life Advantage Fund
  • Birla Sun Life Equity Fund
  • SBI Magnum Multicap Fund
  • Franklin India Prima Plus Fund

For these set of funds the 3 year returns exceed 30 %, the 5 year returns are nearly 20 % and the 10 year returns are between 12 and 17 %.

Mid-cap funds:

  • Franklin India Prima Fund
  • BNP Paribas Midcap Fund
  • UTI Mid Cap Fund
  • HDFC Mid-Cap opportunities Fund
  • L & T India Value Fund

For these set of funds the 3 year returns exceed 35 %, the 5 year returns exceed 20 % and the 10 year returns are nearly 15 %.

Small-cap funds:

  • Franklin India Smaller Companies
  • DSP BlackRock Micro Cap Fund
  • Reliance Small Cap Fund
  • Canara Robeco Emerging Equities

For these set of funds the 3 year returns exceed 40 %, the 5 year returns are nearly 25 %.

So if you are just starting to build a portfolio, your plan can be really simple. Just pick one fund from each category, add one International fund with focus on US for diversification and start investing. It is really that easy, do not get confused by reading all kinds of theory and opinion that sound impressive but make little practical sense.

What if you are already having a portfolio where you have been investing for some time? Well, if your returns are broadly compatible with these funds, it will make sense to stick to your current one. If the returns you are getting are significantly lower then you must change some funds in your portfolio. Remember that over a long period of time, even a 2-3 % difference in returns will mean a big difference in your corpus.

I hope this gives you enough ideas to start evaluating your portfolio or start creating a new one.

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20 thoughts on “Best performing MF s – do you have them?

  1. Another eye opening and excellent objective article Sir ….. I always have doubts on these terms and real life usability of it but never had courage to tell that ….. Thank you again

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  2. Sir,

    Your comment-add one International fund with focus on US for diversification and start investing

    Can you name such fund as an example?

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  3. when indices are at life time highs – both in India and the US, do not expect any returns for a long time to come – better lock in FDs till market cools off and presents a better entrypoint

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      • It is your money, take a bet but read the below first:

        Current Nifty PE Ratio on 01-Sep-2016 is 24.06. ( Long term average is ___. Sign up for premium membership to see the long term historical Nifty PE average.)

        Nifty PE ratio measures the average PE ratio of the Nifty 50 companies covered by the Nifty Index. PE ratio is also known as “price multiple” or “earnings multiple”. If P/E is 15, it means Nifty is 15 times its earnings. Nifty is considered to be in oversold range when Nifty PE value is below 14 and it’s considered to be in overvalued range when Nifty PE is near or above 22. The market quickly bounces back from the oversold region because intelligent investors start buying stocks looking to snatch up bargains and they do the exact opposite when Nifty P/E is in the overbought region.

        Check out what Professor Bakshi (a famous Indian value investor ) has to say about Nifty P/E. Recent research done by my firm shows just how dangerous it is to remain invested in an expensive market. Since NSE started, every time when Nifty’s Price/Earnings ratio exceeded 22, the average return from Indian equities over the subsequent three years became negative.

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  4. I have invested inn these. Are these okay to hold or need to change???

    Large cap: ICICI Focused Blue ship fund
    Mid cap: Mirae asset Emerging Blueship fund

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      • Liquidate when the going is good, you can always repurchase them at a lower NAV/price per unit 🙂 There is general agreement in the market that it is running on liquidity, which is unlikely to last for ever. PE multiples and P/B values of many of these, especially FMCG and Finance companies are at historical high levels and the risk-reward is not in favour of investors 🙂 Prudence demands holding cash in such an environment 🙂

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  5. Dear Sir,

    1. In your list of funds, is it advisable to invest in Franklin India Prima Fund(Midcap), and Franklin India Smaller Companies(Small Cap)? I am asking this because I noticed these 2 funds has about 8 out of 10 top holdings in both funds so there is overlapping in the companies invested.
    2. Is it advisable invest in minimum 2 funds in each category or just one fund is enough? If you say one fund is enough what if the fund I selected stopped performing better then the peers so there is chance of less return so if we invest in more than one fund we can average out the return this is assuming both funds are not doing bad.

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    • Ideally try to have funds from different fund houses. 1 fund in each category is enough. You will have to understand that the overlap within the same category will be quite high. If your funds are not doing well, this will be addressed during your annual review.

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  6. Hello Sir, What is your take on HDFC TOP 200 and HDFC EQUITY FUND. I have about 20% of my MF investment in these 2 funds, and these 2 funds are not performing when comparing funds in same category.

    What do you think one should do? I see for redemption this is the right time as the NAV is yearly High at the moment.

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