Mutual fund Ranking!
Hrishikesh Mukherjee made about 50 films, including Satyakam, Chupke Chupke, Anupama, Anand, Abhimaan, Guddi, Gol Maal, Namak Haraam – films that I can see again and again and again…and I still cannot call him the best.
Dev Anand and Nav Ketan films made Taxi Driver, Guide, Jewel Thief,….et al.
Raj Kapoor’s Shree 420, Aan, Jis Desh mein Ganga behti hai, Sangam…are not ordinary movies.
Name Kishore Kumar, Manna Dey, Mohammad Rafi….the list is endless.
Same thing with sports men. Who is a better sportsman Lance Armstrong or Sachin Tendulkar? Viv or Barry Richards?
Well I really do not know who is the best in this list. And the best thing is barring a couple of people most of them are dead or well past their playing days.
And still it is difficult to pick out the best or rank them. Remember ranking is a media game. ’10 best performing funds’ is as pornographic as porn itself. ’10 top equity shares of 2011′ has ZERO relevance for your portfolio created in 2004 for your daughter’s Ivy League education in 2022.
If it is so difficult to rate sportsmen, artists, etc. DO YOU EVEN THINK it is possible:
1. rate mutual funds by their short term performance?
2. how relevant in life is ‘the best fund of 2011’ for a person who started investing in 2004 for creating a corpus in 2022?
3. what will you do knowing that the 11th fund could be the 1st next year? And it was NOT even in your ‘considering’ list?
4. Is there any guarantee that the fund house, the fund manager, the research guy…will not resign. Or drop dead.???
5. If the best fund gave a 24% return and the 10th fund gave 19% return – does it really matter?
..i have more questions….but my friends say I write too long!! will consider them next time..
Why? rating and ranking artists and sportsmen is a stupid media time-pass.
Lokesh
amazing !
that’s why rank/stars aren’t that important.
you never know when the star fund manager will commit mistakes and scheme’s rating will plunge.
a better alternative would be ETF or Index mutual fund.
thanks.
sk
dear subra…how to identify good MF schemes..
raghavendra
Bang on.
To add a point – do you want to consider schemes from Sundaram Mutual, who has seen their foreign partners exiting everytime, for varied reasons? Isn’t this an indicator of stability?
Wouldn’t you want to consider a more stable fund ( i.e one that has a really long operating history and has been stable in terms of performance? Take a look at HDFC Top 200, and other funds in the same basket and am sure readers will know.)
PS: – Neither do i have anything against Sundaram MF nor do i have a positive bias for HDFC schemes. Just used these names for illustrations..
Jayant
Too good article Subra sir ! I burst out laughing on reading this article ! But 1 question that remains is, if ranking is not important, how can new investor choose which MF to choose from amongst plethora of fund houses and MFs.
Milind N
I do not think, you write long and for an interesting topic like this Longer the better.Good Points Made Subra ! Do also guide our readers about how to select and build their MF portfolio for a goal after 10 to 30 years away
subra
Jayant saying ‘i have no visibility ahead SO i will look in the rear view mirror and drive’ is the answer to your question.
if you do not KNOW how to see ahead – but I do know that seeing in the rear view mirror is bad and foolish, because we are driving in the mountains and NOT in the desert.
My own portfolio is with Hdfc, Templeton (the fund houses) and Naren Sankaran (the man). Simple. Do i need to tell you that I picked them long, long before the world knew them. Pre-1997 for sure 🙂 and have stuck even with funds like Prima – which the media loves to hate.
Dr Mohammed Ali Khan
Subra
Are Index funds the answer then?
dr kishan
Nice informative article. I completely agree that driving forward looking in the rear view mirror is utter foolishness. But then any common man who doesn’t have the acumen of “seeing forward” will not be able to invest in MFs. You had the knack of knowing future good performers. But this is not a common sense.
Please teach us how to look forward, how to pick good instruments for investments before the world knows them. I think it will be required to analyse that instrument (fund/fund house/fund manager) in greater analysis. This, I think, shall require a lot of time to be devoted asking for cutting time from our jobs and families. Or else we shall have to change jobs and get finance associated jobs, so that we spend whole time within the same atmosphere, somewhat like you.
You point our mistakes very well. Please guide towards the correct methodology of investment too.
dr kishan
Dr Mohammed Ali Khan
@Subra @ Dr Kishan
ALL investment is prediction of the future.. Whether you buy shares, MFs, Gold, Real estate or bonds, you are PREDICTING that you will retain or increase your purchasing power. ..And by definition future is impossible to predict.. At the best we can make educated, guarded guesses. Thats why its so valuable to look into the rear view mirror.. Atleast we know where things have been going so far. And usually our investment horizons are at the maximum 20 years. So, to an extent a rear view mirror can help.
vinod
Your article is logical and bang on target – I agree with you. But one needs something to guide them while selecting MF. I have been following Value Research, Outlook Money and Morning Star star ratings while investing by SIP for the last five years. I wish to declare that these ratings have helped me to separate the grain from the chaff and have not lost any money at all except in the case of SBI MSFU Contra Fund (2% return only). I have achieved 15 to 20 % return in all my other investments.
My personal experience tells me that these fund ratings are helpful.
Ashok
This article is utter bullshit (sorry to be crude about it). If you don’t look at past performance how else would you select them? Every investor with an IQ of 40 knows that past performance is no guarantee but the same investor also knows that the PROBABILITY of better performance is higher with funds which have done well in the past.
Ashok
Subra,
>>Jayant saying ‘i have no visibility ahead SO i will look in the rear view mirror and drive’ is the answer to your question.
I think the essential contradiction in this article is that most MF investors are not drivers but back-seat travelers in a chauffeur-driven car – the chauffeur being the fund manager. That is, we have outsourced the investment decision. Now if you have to appoint a driver, wouldn’t you look at his past driving record?
Paramjit
Subra see you kept saying there is no advantage of running this blog! Now you have Ashok telling you what to do. He knows probability (as a CA you may not know stats, right?).
Have fun. By the way why cannot our selectors select batsmen and bowlers on the basis of their immediate past performance instead of having so many selectors, etc…or out source to some of our rating believers. Do you remember why the first rating company in India stopped doing it? I do. But will not name it in public. Reasons were fantastic..and were similar to what you said in this blog. However if there are so many rear view mirror drivers….should advertisers on VR, MC and MS be happy? LOL
Raja
First, the experts in personal finance say – Invest in equities for long term.
Then they said – NO NO.. not in direct equity, you dumb. Invest in MF’s which invest in equity and is managed by smarties…
Then they say – but wait …there are hundreds of them(MF), you have to select only a few. Maybe be just 4-6 of them, you know the smartest among the hundreds…
Then they say – Wait, but how will you know who are the smartest out of the lot ? There are 2 ways, one – you go by rankings based on performance (1 yr, 3 yr, 5yr). But then subra will make fun of you on his blog (and you are addicted to it!). Second, you should know everything about your fund manager. you know the AB,DP,CP,Abba, Dabba,Chabba….
Wait, there is a 3rd option too… you go to a Personal finance experts who run’s his own rankings. You know the private rankings based on personal knowledge on Abba, Dabba, Chabba…
Investing is easy and common man should know everything that he buys. Just like a patient should know everything that his doctor uses and prescribes.
Mahesh K
I agree with Ashok’s second comment. the driver’s example that Subra sir has given is not appropriate here.
Pooja R
amazing to see so many people falling for the ranking racket. 700 equity funds, 50 rated funds, all saying Top 200 is the best..what happens next quarter? Say Icici Pru Discovery is the best…should we transfer all the funds? Asking – what will Mahesh K and Ashok do? Worth seeing – if they do change the location of their AuM, it is proof that advertising works. It is also worth seeing their portfolios.
subra
Dr. Khan
take the portfolio of 5 friends. Calculate returns on their equity, + equity mf portfolio. COMPARE it to the index. Would be surprised if any of them beat it…,..
Ashok
@Pooja R,
I have been investing in equity THROUGH (intentionally capitalised) the MF route for 9 years now with around 18 Lakhs AuM. All my investments are using the “direct” route (not using or getting influenced by agents for over 5 years now). So I know what I am talking about.
Now coming to your question whether I will transfer my assets every month/quarter/year? The answer is simply NO.
The way I use ratings/rankings is when an SIP expires and I have to renew/start a new one.
First thing I check is whether the existing fund has fallen below VROL 4* rating. If yes, hold on to the fund but do not start a new SIP. Instead start a new SIP with a different 4* rated fund ( with a similar profile…. i mean mid-cap/large-cap etc). If a fund falls from 3* to 2*, immediately redeem.
Ratings/Rankings have helped me invest using the above approach. I have held on FT-Bluechip ( 9 years ), HDFC Equity (6 years), HDFC Capital Builder (6 years), weeded out FT-Prima ( after 4 years ), Reliance Growth (after 5 years). I have given sufficient time for duds also.
Subra and people in the finance services industry may know the fund manager or their skills personally but I as an investor does not track such information. Do I know the names of the Fund managers in my portfolio ? NO (except Prashanth Jain). I do not care.
vinod
I agree with Ashok. My modus operandi is similar .It has worked well
for me. These rankings have helped me to eliminate the trash MFs.