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.
- 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.
- 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 %.
- 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 %.
- 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.