Long term performance of MF – personal example #1

Over the years I have been very impressed in seeing how investors have taken to investing in MF schemes. The success assumes more significance if you consider that Indian investors were rather averse to equity and retail participation in our stock markets have been a very poor percentage, in low single digits even today. Marketing of MF as an investment vehicle has a lot to do with the success and there are a few themes that are hammered incessantly, be it in advertisements or by financial planners or MF distributors.

The first of this is the long term performance of MF schemes and the second is the value of regular investments through SIP mode. So much so that most planners work with an XIRR of 12 to 18 %, depending on the type of MF being invested in. This is clearly not a good way to sell as the risks of the equity markets are greatly downplayed. The proof of the pudding is however always in the eating, so it is important to check this against some real data to see how it works. In this post and a few following ones I will aim to do that.

My own investment with MF dates back to 2001 when I did a few investments in Franklin Bluechip fund and ICICI Technology fund. While I will cover those in a future post, let me look at the investments that I did between 2008 and 2010 for an MF portfolio. I started the investments as the stock markets were really down and we wanted to look at some alternative to our normally heavy stock buying. From a market perspective it seemed a great idea and we obviously had time on our side – we did not want to take the money out for the next 10 years and maybe much more than that.

Cut to 2018 October, when I did a review of how the investments had fared in 10 years. I will just give the MF scheme names and XIRR here as the invested amounts are nor really relevant for the purpose of understanding long term performance.

So here is the portfolio and the performance of individual MF schemes in it:-

  • Reliance Value fund ( earlier Reliance Regular Savings Equity ) has XIRR of 12.6 % and has been down nearly 12.6 % this year.
  • L & T Equity fund has XIRR of 13.36 % and has been down nearly 5.5 % this year.
  • HDFC Mid Cap Opportunities fund has XIRR of 20.84 % and has been down nearly 14 % this year.
  • DSP Small Cap fund ( earlier DSP BR Micro Cap)  has XIRR of 21.06 % and has been down nearly 26 % this year.
  • The overall XIRR of the portfolio is 15.28 %

Now, at first glance, this appears quite good and most MF investors will be happy to get such a result. However, when we buy into equity we need to look a little deeper to get a clear picture. So here then are some critical points to consider.

  • Starting on a positive note, the portfolio XIRR was about 20 % just 2 months back !!
  • Note that these purchases through SIP were between April 2008 and March 2010, a great time to invest in MF.
  • The data clearly shows our markets have performed well over 10 years – after all Sensex was below 10000 in 2009 and has been to 37000 this year.
  • So even with the best buying price and the best market performance ( discount the last 2 months ) we are looking at a return of less than 18 % over 10 years.
  • Consider also that these are some of the best funds of that time and fairly reputed now too. 
  • These are all regular funds so the expenses are higher as compared to Direct.

Summing up, it is good to invest in MF regularly and if you can do it at a time when the markets are in a downward trend then all the better. However, under most conditions you should temper down your expectations of XIRR to 12 %. If you get more than that it is a bonus but any plan with a return expectation which is greater does not make sense.

In my other posts on this series, I will provide more data and insights on this.

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