Always pick up the consistent performers - you might have heard this advice from mutual fund experts countless times. However, many mutual fund investors often do not focus on this crucial factor while picking up a scheme. Most investors, especially the new entrants to the arena, prefer looking at star-rating and immediate returns while choosing a scheme.
At a time when the market is at critical phase, it is extremely important to emphasize on the consistency of performance. Sure, the market is hovering around its historical peak, but many uncertainties - some domestic, some international - are haunting the market. That is why mutual fund investors should proceed cautiously in this market. And there is no better way that banking on consistent equity mutual fund schemes to achieve your long-term goals.
Against this backdrop, ET.com Mutual Funds decided to pick top equity schemes which have steadily performed better than their benchmarks and category average over three and five year periods.
How we did it?
We considered only open-ended equity schemes with AUM of Rs 500 crore or more for the study. Schemes that have not completed five years were omitted from the list. The study focused only on regular plans.
After applying the filters mentioned above, we shortlisted schemes which have beaten their category average returns for three year and five year period.
After this, we compared the annualised three-year and five-year trailing returns of schemes along with their benchmark returns for the same period. Next, we calculated the outperformance score for all the shortlisted schemes. Outperformance score is scheme returns minus benchmark returns.
We simply sorted the three-year and five-year outperformance scores from largest to smallest. We performed same exercise on largecap, midcap and multicap schemes. At the end of the exercise, we had our top schemes that have outperformed their benchmarks and categories in both three and five-year periods. Data for research was taken out from Ace Mutual Fund Database.
What should you do?
You may consider investing in these equity schemes if these match your long-term goals and risk profile. It is extremely important to pick the right category based on your risk tolerance. If you are familiar with ratios, you may also compare schemes before finalising your list.
Lastly, these schemes have performed consistently doesn't mean that they won't have bouts of underperformance. Keep track of the performance of your scheme and review your portfolio at least once a year. If the scheme is underperforming for more than a year, you can find out the reason for its underperformance. If you are not convinced about the fund manager's strategy, you may consider selling your investments, and shift the money to another better performer in the same category.
