Don’t be shocked. It’s a fact that globally 85% of mutual funds underperform their benchmark over a 10-year period.
Larry Swedroe who is the author of the book The Incredible Shrinking Alpha, states that after 10 years 85% of large-cap funds underperformed the S&P 500, and after 15 years nearly 92% are trailing the index.
This picture is similar for Indian equity mutual funds as well. Here’s what we have observed over the last 3 years.
- 84% of assets under management (AUM) in large-cap category generated less than 11% returns.
- 93% of AUM in multi-cap category generated less than 15% returns.
- 93% of AUM in mid-cap category couldn’t even generate returns of more than 7.5%.
- 94% of AUM in small-cap category couldn’t generate returns of more than 6%
Isn’t this terrible performance considering the hefty management fees these funds charge you?
No wonder investors are moving to passive and exchange trade funds (ETF’s) which charge less and give returns in line with the benchmark.
It’s all right to invest in ETF’s if you are happy with getting average returns. But what if you could get bigger and better returns by investing in actively managed mutual funds.
Wouldn’t you like that?
Just imagine all the things you could do if your investments reap higher returns…a new home or car…higher education for your child, foreign vacation. There are infinite possibilities.
Now you may be wondering how can you make this a reality…
Kaunsa Mutual Fund Sahi Hai
Mutual funds were designed to make investors life easier who couldn’t pick stocks themselves. But over time picking a fund has become more complex than picking stocks. Currently, there are more than 3,000 mutual fund schemes.
How could a common investor pick the best mutual fund out of this large universe without going crazy?
The gullible investor relies on so-called experts who thrive on complexity. These experts keep their own interest ahead of the investors.
This leads to wrong fund selection and poor returns for the investor. He is forced to make an early exit. He either repeats the same mistake or never comes back to reap benefits from mutual funds.
Has this happened to you?
Don’t worry! With RankMF at your disposal it won’t happen again. It is built exclusively to solve problems investors face while picking mutual funds. It makes investors life easier by helping them pick the best mutual funds to invest in India. More about RankMF in a minute…
But first let’s look at one of the biggest mistakes investors make.
Don’t Invest Based on Past Performance
Let’s say you want to buy a second-hand car. You go to the dealer. He glorifies how well the car has worked for the last 10 years.
There’s nothing wrong in believing him. But do you buy the car simply because it has run well in the past?
Absolutely not. You will buy the car because it could still run well for the next 10 years, right?
Then why not use a similar approach while picking mutual funds?
Why do you look only at the past performance of a mutual fund before investing? Shouldn’t you look at how well it could perform for the next 10 years?
You’re probably nodding your head in confirmation. Anyone with a rational mind would do this. But what seems logical to you may not be profitable for the experts. Therefore, they resort to lazy methods of picking funds for you.
Understand the Difference Between Research and Ratings
If you want to invest in mutual funds you must first understand the difference between research and ratings. They may sound similar but they aren’t. They are different as day and night.
To understand their difference, you must know the difference between percentage and percentile.
Your percentage score is 80% if you score 80 marks out of 100.
But if your percentile score is 80. It doesn’t mean you have scored 80 marks out of 100. It simply means you have scored better than 80% of the people who took test. You could have scored 30 out of 100 and still secure 80 percentile.
Existing websites who claim to give valuable research on mutual funds apply the percentile rating system.
These websites would give 5-star ratings to funds which are in the top 20 percentile. They wouldn’t care to check whether these funds are making money for their investors.
This is like rewarding a student with trophies who scored highest in a class where everyone failed.
The 5-star ratings don’t help you since they measure relative performance rather than absolute performance.
This is a lazy way of rating funds and shouldn’t be called research.
The Right Way to Pick the Best Mutual Funds
So, what is the right way to identify the best mutual funds? How could one tell whether a fund will perform well in the future? We know there aren’t any guarantees. But we know one thing a fund is only as good as its portfolio, right? Then why not study the stocks a fund holds in its portfolio?
Fund managers do the same thing when they pick stocks for the fund. They assess whether it has the potential to deliver solid returns in the future.
You must also apply a similar approach while picking funds. But again, the problem is how does one analyse hundreds of stocks a fund owns. It is nearly impossible for an investor to do so.
That’s where RankMF’s proprietary research engine comes into play.
RankMF’s Giga Trading Engine Analyses 20 Million Data Points Daily
RankMF’s Giga Trading Engine analyses over 20 million data points daily to research and rank every mutual fund scheme. A bulk of efforts are put to check the quality of scheme’s portfolio. That’s where future profits come from.
The engine grades stocks based on various parameters like:
- Balance sheet strength
- Industry they operate in
- Size of the opportunity and business
- Efficiency of the business
These are just a few of the several data points the research engine tracks. It would be impossible for an individual to track these data points for all the listed stocks. RankMF does all the hard work to give you the best output.
Outputs from RankMF to Pick the Best Fund
- Fund Sahi Hai
The first thing an investor should look at before investing in any fund is whether it holds the right stocks in its portfolio. RankMF analyses industry and stock specific data. It rates 100% of all stocks and mutual funds. It analyses every fund’s portfolio and gives a thumbs up or thumbs down rating.
You must steer away from all the funds which have thumbs down rating. These are funds with toxic stocks. These funds may generate some returns over short term but they won’t deliver solid returns over the long term.
- Time to Invest?
Time is the second factor you must check if the fund holds the right stocks. Investing at the right time is important if you want to make solid returns.
This is like waiting for Diwali sale before you buy electronics or a mobile. The phone you decided to buy may be the best but you don’t buy it right away. You wait for discounts to buy it, isn’t it?
Actual Value – Discount = Extra Savings
RankMF applies the same principle while Investing in mutual funds. Margin of Safety Index (MosDex) is a proprietary tool which tells you if the fund is available at a discount. Bigger the MosDex value bigger the discount.
Actual Value – MosDex = Bigger Returns
What do you do when you get big discounts? You buy in truck loads, right?
Just do the same when you see a MosDex value bigger than 105 in your selected fund. Double your investments.
When MosDex is between 90-105. Continue your investments in the fund.
When MosDex is between 80-90. There isn’t any discount. So you don’t buy the fund and park your money in a liquid fund.
When MosDex is below 80. The fund is marked up more than the actual value. Will you buy a mobile from a dealer who is asking more than the market price just because there is too much demand?
Obviously not. You will wait for the prices to fall, right? If you are smart and resourceful you will sell the mobile to the dealer if you get one.
Now you can’t do that with a phone. But you can certainly do it with your mutual funds. When the MosDex is below 80. You must sell the fund if you hold it.
So that’s how you can use RankMF’s research and ratings to pick the best mutual funds in town. RankMF empowers common retail investors like you to pick the best mutual funds in a simple and easy way while it does all the hard work.
Now you may not be able to check whether a fund is right or time to invest in it is right until you sign-up to RankMF. Its free and takes 15 only minutes of your time. That’s not all. You can get free access to all the other products from Samco as well with this single sign-up.
So, quickly sign-up and create wealth for yourself by investing in the best funds.