Who says, MFs are not performing!

You might have heard the old adage that one cannot compare apples with oranges. However, one can compare apples with apples. The same principle applies everywhere even while we invest. Some of the investment products such as Equity Mutual Fund collect money from investors and invest in basket of selected stocks.

 

This stock selection is primarily based on predefined investment objective of mutual fund (MF) schemes.  For instance, if equity MF scheme has an investment objective of investing money only in large-cap stocks, it will benchmark its investment to relevant benchmark indices such as NSE Nifty 50.

 

NSE Nifty 50 is a bunch of 50 stocks or large companies in terms of Market Cap such as Reliance, HUL, ONGC, and TCS. Therefore, such MF scheme will endeavor to invest in certain large-cap companies having similar market cap of Nifty 50 companies. Still the composition of that MF scheme may not necessarily follow the index and invest exactly in all 50 stocks and/or in the same proportion of that of Nifty 50 index.

 

Fund managers manage a fund’s portfolio more efficiently to extract the most out of companies expected to do better and shield the fund’s performance from getting affected due weaker stocks.

 

Therefore, any MF scheme’s performance could be compared with its closest benchmark.

 

There was a time when MFs delivered negative or lower returns, but these returns need to be compared with its benchmark returns. Thus, for instance, even if an equity fund X has delivered -5% returns whereas its benchmark Nifty has delivered -7% returns, which is lower than the fund, one can comfortably say that the MF Scheme X has achieved its objective of beating its benchmark.

 

Further, this situation of negative returns has not been seen for too long, since MFs have been able to manage their portfolio efficiently and have delivered better returns. In the last one year, 70-80% of the Equity Diversified Mutual Fund schemes and almost all top rated schemes have comfortably beaten their benchmarks. Nifty has delivered around 10% returns in the one-year period whereas most of the equity funds having Nifty as a benchmark have been able to beat these returns by a handsome margin. Therefore, it is wrong to say that mutual funds are not performing just because they have delivered lower returns. However, it is necessary to see MF’s returns with relevance to its benchmark returns.

 

We have filtered 50 schemes from Equity Funds with a mix of Large, Mid, Small and Flexi Cap Funds. These funds have minimum 5 years of track record. From this universe of 110 over 80 schemes or over 75% schemes have beaten Nifty returns in one year performance. From the following list you can see top 50 funds sorted on 1 year performance have delivered 12.9% or more returns compared to Nifty returns of 10.1% in the same period. Top 10 schemes have beaten Nifty by big margin and delivered 95% more returns than Nifty where as top 20 schemes have given minimum 65% more returns than Nifty. Top 50 schemes have beaten Nifty by at least 28% or more in one year performance.

 

 

Performance of Equity Mutual Fund Schemes

 

Note: P2P-C Point to Point Absolute, P2P-C – Point to Point Compounded,

 

Mutual Funds are supposed to beat their benchmark indices. We can surely say that major percentage of Mutual Funds are still managed efficiently and they are achieving what they are supposed to achieve. Investors therefore need to compare funds performance in a right way with their benchmark to see the right picture.

Mutual Funds performance really looks encouraging and investors should have descent allocation to top rated funds in their portfolio. Talk to our experts and invest in ideal funds to gain from Mutual Funds.

 

Happy Investing

Manish Tawde

Product Research & Financial Planning

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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