Categories: Mutual Fund

High Performing Mutual Funds – Are they best mutual funds?

When we decide to invest then our first search is to find High Performing Mutual Funds. Because we want to reach our goal as fast as possible. But are they really best funds to invest?

Let us take an example of cricket. I will consider two players to give you an idea about what I am going to share with you in this post.

First cricketer is Rahul Dravid and the second one is Shahid Afridi. Both are the best batsmen. However, on whom we rely most? Is it on Dravid or Afridi? Definitely on the WALL (Dravid) because of his consistency but not on high sixes and fours of Afridi.

Rahul Dravid’s lifetime scorecard is as below.

Shahid Afridi’s lifetime scorecard is as below.

Now concentrate on average and strike rate. You notice that the average is high for Rahul Dravid. However, strike rate is high for Shahid Afridi.

The probability of Afridi getting runs of around 23 (in ODIs) or 36 (in Tests) is high than Rahul Dravid reaching his average of 39 (in ODIs) or 52 (in Tests).

However, on whom we rely the most? It is on Dravid because of higher consistency than Afridi’s inconsistency.

You notice one more thing between these two players ODI records. Afridi played the higher number of matches than Dravid. However, he failed to attain or cross Dravid’s average.

How we connect this to equity mutual fund investments or for any investments?

High Performing Mutual Funds – How they can kill your wealth?

Let us say, two friends, Mr.Ajay and Mr.Sanjay decided to invest in equity mutual funds. They searched and found two funds are really high rated. Let us say these two funds as Fund ABC and Fund XYZ.

However, they again found that both funds average returns over 5 years are same. Now they really in a confused mind of which one to choose.

Both are high performing mutual funds and both are ranking highly in all rating portals. Also, the average 5 years returns are almost same.

In such a situation, which one to choose?

Here come the Dravid and Afridi example. Who performed consistently with lowest ups and downs? This is also be called Standard Deviation.

What do you mean by Standard Deviation?

Standard deviation is nothing but how much funds deviates from the average. I will explain you how the volatility or standard deviation will really affect your returns from below example.

I have chosen two funds named as Fund ABC and Fund XYZ. I will take 5 years average returns of both the funds, Both funds gave us the average returns of 12%. However, the standard deviation of Fund ABC is 21 and Fund XYZ is  12.

I will invest Rs.100 as a lump sum in both the funds on the same day and wait for 5 years. The results will be as below!

Average Returns are same and invested amount is also same. But the final returns are different. It is all because of volatility in the Fund ABC and Fund XYZ. That also for 5 years and for the invested lump sum amount of Rs.100, the difference at the end is Rs.5!

Many of us just concentrate on rate of return. However, ignore the biggest culprit called volatility or Standard Deviation. The results will astonishing or shock you at the end.

Why we consider High Performing Mutual Funds?

It is human tendency to look for BEST while buying something or investing. So obviously we go in search for BEST or high performing mutual funds.

We feel that high performing mutual funds will give us high returns. It is not true at all with the above examples of cricket players and the funds.

Also, we never estimate the risk we can take. We always feel that HIGH RISK means HIGH RETURN. But forget the simple logic that HIGH RISK will not GUARANTEE you HIGH RETURN. Instead, the high risk may lead to a positive or negative return, which does not mean HIGH RETURN.

The basic problem is star ratings of few online portals. However, we never try to understand of what method they adopted or in what way they are giving 5 or 4 star.

Moral-Never chase the high performing funds. Along with higher returns, how the fund generated that much high return is also important. Remember one thing, give the equal importance go goal as well as to the way of reaching goal.

Consistency is key rather than high performance. Refer few of my latest blog posts related to Mutual Funds.

BasuNivesh

View Comments

      • sir, presently I am not holding HDFC Capital Builder , But I do not know why this fund is not included among top funds? Its, Alpha, Beta, sortino ..all are in favour of this fund. most important, its AUM is also not too much.

        HDFC Cap. builder looks strong than Mirae India, Kotak Select & Opportunities, ICICI Dyn...
        Why Basavaraj and other MF experts not consider this as top rank fund?

  • Hi Basu Sir

    Can you please suggest any good equity mutual fun for 2018, my investment horizon is 3-5 years.

      • Hello Sir,

        Then what will you suggest for the said period. If i can increase the time horizon then what will be best equity funds.
        Also now PPF, FD are all reducing interest rate so what are other investment options.
        Me and My husband are in Middle income Group and our investing in PPF and ELSS.

  • Hi Basu,

    I had a question on the Mid/small cap segment, if you could help me on this it would be great.

    I have been investing in my portfolio and have reduced my funds to the below:
    Birla frontline equity,
    SBI bluechip,
    Mirae asset emerging bluechip, Franklin India high growth co and
    Franklin smaller companies fund

    While reviewing my funds for 2018, I have been struggling to understand if it would make sense to make some changes to the mid/small cap segment here?

    In terms of consistency, I really like Mirae asset emerging bluechip fund and another HDFC mid cap opportunities fund and in small cap my choice is shifting from my existing Franklin smaller companies fund to either SBI small & midcap fund or L&t emerging business fund.

    Can you please give your feedback on these funds please?

    There has been a huge difference between the returns of these funds, so should I make any changes to my portfolio and if I want to add a single fund to a different goal for my new born for the next 20-25 years which one should that be from the above?

    • Sandip-In case of Mid Cap, I stick to either Mirae or HDFC. In case of small cap, I stick to Franklin.

  • Hello Basu Sir,

    I'm looking forward to invest some lumpsum amount in short term debt fund. and I'm confused between 2 mutual funds:
    1. ICICI prudential short term Fund - dir-growth
    2. HDFC short term opportunities fund - dir- growth

    ICICI fund has a long duration 3.xx w.r.t HDFC 1.61, while HDFC has full exposure in financial services and doesn't hold SOV bonds while ICICI has pretty descent exposure in SOV.

    My main aim is to generate above FD returd while minimizing the risk. I can hold it for more then 3 to 5 years.

    Thankyou.

  • Hi basu sir,,, sir my current sip portfolio is
    Axis long tetm equity- rs 3000
    Franklin tax shield-3000
    Kotak select focus -2000
    Icici pru focussed bluechip-2000
    Hdfc balanced fund-2000
    Uti midcap-2000
    Sbi magnum midcap-1000
    Investing since early 2015, time horizon 20 yrs from now. Should I continue with these funds or you suggest some changes? Awaiting for your kind advice..

      • Thanks for your response sir. Actually I am also investing in PPF by Rs5000 per month and Rs 10-15k in tax saving FD. I wanted to know about my mf portfolio. Kindly guide me sir,

        • Krishanu-Funds are good. But keeping multiple funds within a same category is of no use (like Kotak and ICICI or UTI and SBI).

          • Thanks a lot sir. As my time horizon is 25 years, should I discontinue HDFC balanced fund? Sir what is your choice SBI or UTI or any other midcap fund? As per your advice I will discontinue ICICI. Plz help me to consolidate my portfolio. Thanks a lot once again.

          • Krishanu-One tax saving (Franklin), one large cap, one mid cap and one small cap enough. Manage asset allocation like 30:70 and for debt, you can use PPF. If you want, then continue HDFC Balanced fund also. No harm.

  • Sir

    I am 29, PSU employee. I have following SIPs started from September 2017, so new investor here.
    1. Reliance Small Cap Fund Growth - 2000
    2. HDFC Mid-Cap Opportunities Fund Growth - 2000
    3. Kotak Select Focus (Large Cap) Growth - 1000

    I am looking for long-term investment i.e. 7 years to 25 years. Kindly provide your opinion & suggestion on my portfolio.

  • Hi Basu,

    Thanks for the blog.Its very informative. I need your opinion on my portfolio.

    I am 30 and married with no children. I have a house loan of around 40 lakhs and I am paying a EMI of around 37K every month for next 20 years. Apart from that I dont have any liabilities.

    Below is my portfolio.

    A)I have FDs worth 37 Lakhs. Invest around 70K every month in FD.

    B) Mutual Funds
    Birla SL Frontline Eqty-Direct (D) 8000
    Birla SL Top 100 - Direct (D) 8000
    DSP-BR Micro Cap Fund - Direct (D) 1000
    DSP-BR Opportunities Fund 2500
    Franklin (I) Smaller Co -Direct (D) 1000
    Franklin India Bluechip Fund - Direct - Dividend 1000
    Franklin India Prima Fund - Direct - Dividend 3000
    Franklin India Prima Plus - Direct - Dividend 3000

    Total of around 27K every month in SIP for next 5 years.

    C) Invested in Share market for around 10 Lakhs.

    D) 4 Life Insurance worth 5 lakhs - 20K premium every year.

    E) I dont have any PPF or NPF Accounts.

    Both my Mutual Funds and Equities portfolio are doing good.

    Goal – Child education, retirement,One more house.
    tenure – minimum 10 years.

    Questions
    a)Should I increase my monthly allocation in Mutual Funds and decrease it in FDs?
    b)Any Changes required in my portfolio?

    Please let me know your opinion.

    Thanks in Advance
    Kumar

  • Hi Basu,

    Thanks for the verygood artical/information, please suggestr me
    my Age 35, owned home, No Loan.
    below 19K SIP investing (since 2010 and some started in 2014)
    6k (sector fund) - 2k reliance pharma + 2k Reliance Banking + 2k IcICI Technology
    5k (ELSS) - 2k Axis Long term + 2k Reliance tax saver + 1k DSPBR Tax saver
    2k (balance) - 2k icici Balanced fund
    2k (gold) - 2k Reliance Gold Saving Fund
    2k (Diverified) - 1k icici discovery fund + 1k Reliance Equity Opportunity
    1k (Large cap) - 1k ICICI Focused Bluechip
    1k (Divident) - 1k ICICI Dividend YieldnEq. Fund

    FD - 5Lac(renew every time)
    EPF - 80K/year(my+employer contribution)
    PPF - 60k/year
    RD - 5K/month

    Goal - max possible wealth creation(child education, retirement)
    tenure - minimum 15year to max 25 year

    Please suggest is it good portfolio or suggest any modification
    + i want to invest 6k/month - which sip i add it or take new sip ?

  • Hi Mr.Basu,
    I invested 60 lakhs in sbi DAF from my father's advise ( retired sbi employee) and i am planning to change this amount to hdfc prudence fund, l&t prudence fund and tata balanced fund for monthly regular income. Whether it is advisable to change into balanced fund or retain in the same scheme. Can you suggest any other investment schemes for bulk amount for regular income. I recently started investing 20000 sip in diversified equity funds for long term goal. Give me suggestions for bulk investment. Thanks

    • Vasanth-SBI DAF? Also, it now became a fashion that to invest in equity oriented balanced fund for monthly withdrawal. But do remember that such funds have exposure of around 65% into equity. Hence, I don't think it is wise to follow. Regarding your requirement, I am not sure to what extent you are depending on this monthly income. If this is the only source of income, then I suggest you to stay away from equity. Use products like LIC's Jeevan Akshay or annuity plans even you can try postal MIS.

  • Hi Basu,

    I am investing 62,000 per month in SIP mode of more than 95 % in below Equity Mutual funds and rest in balanced Mutual funds as mentioned below.

    All the below funds i am investing in Direct mode (Without any broker) with Growth option.

    Fund Class - Equity Fund Category: LARGE CAP
    SL No.
    1 ICICI Pru Focused Bluechip Equity DIRECT GROWTH Rs 2000/Month
    2 ICICI Pru Top 100 Fund DIRECT GROWTH Rs 5000/Month
    3 SBI Blue Chip Fund DIRECT GROWTH Rs 3000/Month
    4 Birla Sun Life Top 100 Fund DIRECT GROWTH Rs 1000./Month
    5 Birla Sun Life Frontline Equity Fund DIRECT GROWTH Rs 2000/Month
    6 Kotak Select Focus Fund DIRECT GROWTH Rs 1000./Month
    Total Equity LARGE CAP Rs 14000/Month
    ____________________________________________________________________

    Fund Class - Equity Fund Category - Diversified Equity
    SL No. Fund Name Mode Option SIP
    1 ICICI Pru Value Discovery Fund DIRECT GROWTH Rs 2000/Month
    2 ICICI Pru Multicap Fund DIRECT GROWTH Rs 2000/Month
    3 Birla Sun Life Advantage Fund DIRECT GROWTH Rs 2000/Month
    4 Birla Sun Life Equity Fund DIRECT GROWTH Rs 4000/Month
    5 Franklin India Prima Plus DIRECT GROWTH Rs 2000/Month
    6 Franklin India High Growth Companies Fund DIRECT GROWTH Rs 2000/Month
    7 L&T India Value Fund DIRECT GROWTH Rs 2000/Month
    8 DSP Black Rock Oppurtunities Fund DIRECT GROWTH Rs 2000/Month
    Total DiversifiedEquity Rs 18000/Month
    ________________________________________________________________
    Fund Class - Balanced
    S.No
    1 ICICI Pru Balanced Fund DIRECT GROWTH Rs 2000/Month
    2 ICICI Pru Balanced Advantage Fund DIRECT GROWTH Rs 2000/Month
    3 HDFC Balanced Fund DIRECT GROWTH Rs 1000/Month
    Total Balanced Fund Rs 5000/Month

    _______________________________________________________________________

    Fund Class - Equity Fund Category - Small and MidCap
    S.No
    1 Mirae Asset Emerging Bluechip Fund DIRECT GROWTH Rs 4000/Month
    2 Birla Sun Life Small & Midcap Fund DIRECT GROWTH Rs 2000/Month
    3 Birla Sun Life Pure Value Fund DIRECT GROWTH Rs 2000/Month
    4 Franklin India Smaller Companies Fund DIRECT GROWTH Rs 3000/Month
    5 HDFC Mid-Cap Opportunities Fund DIRECT GROWTH Rs 2000/Month
    6 L&T Emerging Businesses Fund DIRECT GROWTH Rs 2000/Month
    7 L&T Midcap Fund DIRECT GROWTH Rs 2000/Month
    8 DSP Black Rock Microcap Fund DIRECT GROWTH Rs 3000/Month
    Total Small and Midcap Fund Rs 20000/Month
    _____________________________________________________________________

    Fund Class - Sectorial
    SL No.
    1 UTI Transportation and Logistics fund DIRECT GROWTH Rs 5000/Month
    Total Sector Fund Rs 5000/Month

    Please suggest me whether my portfoliois good or not, as i want to invest for 25-30 years in SIP for long term.

    Thanks,
    Srikanth

    • Srikanth-First ask yourself that whether so many funds required? Whether you are investing Rs.1 or Rs.1 Cr a month, you no need to have more than 3-4 funds. Also, the biggest risk you are playing is investing without proper asset allocation. I am not sure who guided you. But you must seriously think over it. If you can't do, then hire a planner for the same who can guide you.

      • Hi Basavaraj,

        I am investing in EQUITY-LARGE CAP, SMALL-MIDCAP , BALANCED, SECTOR and DIVERSIFIED EQUITY funds.But what do you mean by asset allocation?

        Here i have alloted my funds accross different categories of funds, But didnt understand what do you mean by asset allocation?
        Please clarify

        • Srikanth-Equity is ONE asset. Investing your 100% into a single asset is most dangerous. Hence, you have to use debt asset also. If you are unable to understand the basics, then either you have to learn and start investing or take the help of some experts.

          • Hi Basavaraj,

            I am also investing in PPF and Balanced funds which comes in debt portfolio.But ,still equity Percentage is more than debt.The reason i choosen is since i want to invest for period of -25-30 years and that too in SIPmode.Then if we invest for long term for 25-30 years, i read in newspaper like risk becomes zero and investor gets benefiited by compounding.

            If still, i am wrong please clarify

          • Srikanth-PPF is best debt product only if maturity is matching with your goal. In a case of Balanced Funds (assuming equity-oriented), only 35% is debt and rest equity. Who is saying that if long term investment means RISK IS ZERO? Compounding happens even in the case of Bank FDs also. We have the false belief that compounding only applies to equity mutual fund. Diversification is a must for any investment.
            A so-called expert not recommending you means neither he don't know how equity market works nor he is acting on behalf of some selling pressure.

          • Hi Basavaraj,

            Thank you for the advice. No Expert advised me,I read in Newspaper that In Equity Mutual Funds if someone made long term investment risk almost becomes Zero , and they said ,like check history of mutual funds performance as a proof for their analysis.

            Any way, Since you advised to diversity the funds, Please suggest me how to diversify the portfolio as i have 62K per month to invest monthly. Please advise all possible scenarios to balance, diversify and make money in best possible way.

            Thank you in advance.

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BasuNivesh
Tags: High Performing Mutual Funds
10 years ago

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