Best Mutual Funds: Value Research CEO Dhirendra Kumar on how rankings help
In the two decades since Business Today and Value Research
jointly conducted the first systematic analysis of Indian mutual funds,
the number, size and variety of Indian mutual funds have increased
massively.
I'm instinctively opposed to the idea of mutual fund awards. The reason is the way awards have been chosen, and the goals they have been given for. Many such awards are backward-looking, and do nothing for investors.
By backward-looking, I mean that they tend to be based on simple measures such as the returns generated by different categories of funds. Often, the evaluation is done on one-year returns, perhaps based on the logic that as the awards are annual, they should look at annual returns.
On the face of it, there is nothing wrong with this logic. However, at the end of this exercise, investors are none the wiser. They merely get to know of the funds that performed better than others, and so were honoured.
In the two decades since Business Today and Value Research jointly conducted the first systematic analysis of Indian mutual funds, the number, size and variety of Indian mutual funds have increased massively. There are now 44 asset management companies running 2,000 funds that are managing Rs 6.87 lakh crore of assets in 4.72 crore investor accounts. However, that only increases the investor's problem of navigating through the thicket of data, information and hype that comes out of the fund industry.
And that is where the Business Today-Value Research rankings come in. These rankings are different as their goal is to help you, the investor, solve the actual investing problem. We aim to do this in two ways. The first is by simply showing you which funds are best by our criteria of riskadjusted returns. Our system takes into account a much longer period for evaluation, and can serve as a serious guide to future performance.
The other is to help you understand the thought process that should go into choosing the particular types of funds that are suitable for your investing needs. I say 'types of funds' deliberately, because the choice of fund category is more important than the actual fund. A good fund with a risk-returns profile that is not suitable to you may be worse than the other way around.
To begin with, we have excluded some types of funds from our universe.
Mostly, these are funds that limit their ambit to some theme or sector or other specialty. These funds are suitable only for fulfilling specialised needs, and often do not exist in large enough homogeneous cohorts to be evaluated on a relative scale.
We divided the rest into five categories. At the beginning of the risk-returns continuum. we have placed aggressive growth funds that offer higher risk and returns. If you like to realise maximum returns that good equity funds can yield but do not mind the occasional sharp dip, then these are for you.
Next come growth funds, which take the same general recipe but reduce the risk levels and give up some of the returns when the markets are in their headier phases. In the third category, we have conservative growth funds, which add some fixed income component and sharply reduce the degree of losses that your investment can suffer during negative phases of the equity markets.
Lower down the risk scale are two fixedincome categories. Both are primarily of interest to corporate investors. Income funds hold some risk in times of unstable interest rates, but can offer higher returns than the near-zero-risk 'cash' category that has better returns than bank deposits, to which they are an excellent alternative.
- The author is Chief Executive Officer, Value Research
By backward-looking, I mean that they tend to be based on simple measures such as the returns generated by different categories of funds. Often, the evaluation is done on one-year returns, perhaps based on the logic that as the awards are annual, they should look at annual returns.
On the face of it, there is nothing wrong with this logic. However, at the end of this exercise, investors are none the wiser. They merely get to know of the funds that performed better than others, and so were honoured.
In the two decades since Business Today and Value Research jointly conducted the first systematic analysis of Indian mutual funds, the number, size and variety of Indian mutual funds have increased massively. There are now 44 asset management companies running 2,000 funds that are managing Rs 6.87 lakh crore of assets in 4.72 crore investor accounts. However, that only increases the investor's problem of navigating through the thicket of data, information and hype that comes out of the fund industry.
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The other is to help you understand the thought process that should go into choosing the particular types of funds that are suitable for your investing needs. I say 'types of funds' deliberately, because the choice of fund category is more important than the actual fund. A good fund with a risk-returns profile that is not suitable to you may be worse than the other way around.
To begin with, we have excluded some types of funds from our universe.
Mostly, these are funds that limit their ambit to some theme or sector or other specialty. These funds are suitable only for fulfilling specialised needs, and often do not exist in large enough homogeneous cohorts to be evaluated on a relative scale.
We divided the rest into five categories. At the beginning of the risk-returns continuum. we have placed aggressive growth funds that offer higher risk and returns. If you like to realise maximum returns that good equity funds can yield but do not mind the occasional sharp dip, then these are for you.
Next come growth funds, which take the same general recipe but reduce the risk levels and give up some of the returns when the markets are in their headier phases. In the third category, we have conservative growth funds, which add some fixed income component and sharply reduce the degree of losses that your investment can suffer during negative phases of the equity markets.
Lower down the risk scale are two fixedincome categories. Both are primarily of interest to corporate investors. Income funds hold some risk in times of unstable interest rates, but can offer higher returns than the near-zero-risk 'cash' category that has better returns than bank deposits, to which they are an excellent alternative.
- The author is Chief Executive Officer, Value Research
