InvestorQ : How can we select a particular fund for a longer period of 15+ years?
Swapnil Sarang made post

How can we select a particular fund for a longer period of 15+ years?

Ashoka Patkar answered.
1 year ago
Mathematically, ranking is provided by calculating the risk-adjusted historical performance of each scheme in the chosen category over various time periods. In other words, the star ratings depict how a scheme has performed in the past based on returns provided and the potential risk to the investments made. In common practice, the time periods chosen to calculate these risk-adjusted returns are the 3-year, 5-year, and 10-year trailing returns.

The percentile ranking of the scheme is subsequently arrived at by combining these period-based risk-adjusted returns. This is one of the key reasons why mutual fund schemes remain unrated till they have completed a minimum number of years of operation. Thus, basing your investment decisions purely on the ranking is a foolish move. You need to link your mutual fund investments to financial goals, risk appetite, age, salary, etc. Invest in funds that have consistently performed well across different market cycles.

Another way to look is to view the Fund Manager, see the mutual funds that are handled by the manager and see how is their performance. If most schemes are doing well, it indicates the manager is capable of handling the particular scheme and if that scheme tops the list, then it is a sure shot indication of the Fund Manager being good enough to handle the money. When your lens turns to a 15-yr perspective, all the ups and downs are evened out and a good, stable fund will have the potential to be a wealth creator. It doesn’t have to be the top fund, just had to be consistent.

Keep track of your fund’s performance periodically, say once a year. Ensure that any underperformance is more an exception than the norm. If you feel that your fund is constantly underperforming the relevant benchmark, then and only then, you need to think of switching to another scheme.