The mark of a good mutual fund is one that has performed well in good times and bad.
While virtually every fund delivers good returns during a bull run, we decided to look at diversified equity funds that have managed the volatility well during these periods and delivered better returns than their peers.
Benchmark returns
Every fund must have a benchmark. A fund's benchmark is an index that is chosen by a fund company to serve as a standard for its returns.
Let's say the fund is a diversified equity fund that has benchmarked itself against the Sensex. So the returns of this fund will be compared vis-a-viz the Sensex.
In effect, the fund is saying that the benchmark's returns are its target and a fund should be deemed to have done well if it manages to beat the benchmark.
If the Sensex rises by 10% over two months and the fund's Net Asset Value rises by 12%, it is said to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have underperformed the benchmark.
But if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. But, if the NAV drops by more than 10%, it is said to have underperformed the benchmark.
Another way to compare performance is to look at the average performance of all the funds in that category. See how your fund is doing when compared to average returns of other such funds.
The winners
We narrowed down on seven diversified equity funds.
|
Periods of volatility |
Jan 1 Jan 24 |
Mar 1 Apr 29 |
Sep 30 Oct 28 |
|
Birla Mid Cap |
-4.58 |
0.87 |
-8.67 |
|
Chola Midcap Fund |
-3.74 |
1.84 |
-8.47 |
|
Franklin India Prima |
-5.70 |
1.25 |
-6.73 |
|
Sundaram Select Midcap |
-2.80 |
2.13 |
-8.63 |
|
Birla MNC |
-5.35 |
-0.31 |
-7.28 |
|
Kotak MNC |
-4.18 |
4.60 |
-7.04 |
|
UTI MNC |
-5.39 |
0.99 |
-5.81 |
|
Category average |
-7.06 |
-3.48 |
-10.04 |
|
BSE Sensex |
-7.52 |
-7.47 |
-10.99 |
|
CNX Midcap |
-9.06 |
-3.81 |
-10.49 |
Category average refers to the average performance of other diversified equity funds.
The reason
All the three funds (Birla MNC, Kotak MNC, UTI MNC), that are mandated to invest in the multinational companies lost less than most of the other diversified equity funds.
A closer look reveals that there are a number of common stocks in all their portfolios and they have invested heavily in three sectors: Fast Moving Consumer Goods, Healthcare and Basic Engineering.
The stocks of multinational companies have suffered a lower impact in these market gyrations.
Also, a number of these funds did not invest all their money but kept some of it in cash. Chola Midcap Fund, Sundaram Select Midcap Fund, Birla Mid Cap and Franklin India Prima had a significantly high cash exposure.
Overall, these funds did not fall as much as the index or their peers. Despite the fact that a number of them have invested heavily in mid-cap stocks which are known to be risky.
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