Mar 10, 2017 10:24 AM IST | Source:

Reviewing portfolio regularly: A comparison of SIP performance

While comparing funds never compare large cap funds with mid cap funds.

Amit Trivedi

Recently, someone sent me some article regarding need to periodically review mutual fund schemes one has invested in. The article stressed on the performance of funds and highlighted the difference between top 5 funds and bottom 5 funds based on long term SIP returns.

Have a look at the table below (for the purpose of maintaining anonymity, we are not disclosing the names of schemes, but showing only performance numbers. However, the data presented is real).

(Data as on 28th February 2017)

These numbers look compelling for making changes in the portfolio. Majority of the investors looking at the above table would want to ask questions. We need to dig deeper to find out what happened.

There are two important pieces of information – both easily and mandatorily available in case of all mutual fund schemes. The first is the scheme’s investment objective, investment style and asset allocation. We can access this from the Scheme Information Document (SID). The second piece of information is the historical NAV chart.

When you check the asset allocation or the investment universe, you can make out that the top 5 schemes are all investing in mid-cap stocks, whereas the bottom 5 are large-cap schemes. When two schemes are investing in different segments of the market, is it fair to compare?

Let us now look at the NAV chart for all the schemes for the past 10 years – the period for which the SIP returns are compared. In the graph below, I have only taken 3 schemes from both the categories – the top performers and the bottom performers.

(Source: Value Express)

As is evident from the above, for the first 6 ½ years (from March 2007 to August 2013), the NAVs of the schemes moved in an almost similar manner. However, from August 2013 onwards, the mid-caps had a dream run, whereas the large-caps languished.

This 3 ½ year bull run in the mid-caps meant all the accumulated units for the previous 6 ½ year period got repriced at higher level. The price rise is stark. To understand how SIP really works, you may read our earlier article: You must know this about MF SIP returns. This explains why these schemes turned out to be top-performers.

Now, the questions are:

• Could anyone predict this move way back in 2007?
• Forget March 2007; could anyone predict even in August 2013 that mid-caps would produce such an astounding outperformance as compared to large-caps?

All such analysis looks great after the fact. It is like closing the stable door after the horse has bolted.

There is no point regretting after the fact. The key term here is “regret”. If you knew in advance, you could and should have taken appropriate action. However, if you didn’t know then, is there a point in regretting now after the results are out? Can you do something about it? Can the regret improve your investment results?

It is futile to even do or read such a comparison. This is sheer waste of time. You just do not know when the tide would turn. It is better to stick to a plan and continue the discipline.

The author runs Karmayog Knowledge Academy. The views expressed here are his personal views.
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