OUR BOOKS

16 personal finance principles every investor should know how to be your own financial planner in 10 steps 11 principles to achieve financial freedom

Mutual Funds Performance vs Benchmark Performance

by Manish Chauhan · 124 comments

How would you judge whether you have scored good marks in an exam? How do you define “good”? If you had very very easy test and most of the questions were easy, would you call 80/100 a great score? NO! . In the same way, if the exam was very very tough and made everyone cry, but you scored 75/100. Would you call it a great score then? Yes! So the point I want to make is there’s always a benchmark in any area to decide if the performance was good or bad. If you have done better than the benchmark, you did well, else you did bad.  This is exactly how mutual funds are to be judged. You can’t just say a mutual fund has performed bad or good based on the returns it has given in a time frame.

What is a Benchmark?

Each and every mutual fund has a mandate and rule defined on where will it invest and in what proportion. Like if a mutual fund says that it will invest in all the large cap companies in India, then its benchmark would be mostly NIFTY, because NIFTY is the indicator of the large cap companies. And the whole point of investing in a large cap mutual fund is that it should give you better returns then NIFTY because you can always invest in NIFTY and get the returns without any fees or risk. So only if a large cap equity mutual fund beats NIFTY, you can say that it performed Good. Because if it does not then it has performed badly even after you paying him the fees, what’s the point of paying the fees and getting returns lesser than the Index which gives you some returns anyways.

In the same way a Small Cap Mutual Fund would have CNX MID CAP. One can just buy that Index and get returns from it based on the movement of the stocks in that benchmark. A mutual funds tries to take a call on what stocks to select and when to get rid of them to generate superior results and only if it can beat its benchmark, we can say that the mutual fund performed better that it’s benchmark.

Bad Market Performance in last few years

So in any mutual fund, there is a benchmark and you can say that the mutual fund performed good or bad in a time frame only if the returns from mutual fund is better than its benchmark for that particular period. Now based on this very simple rule, lets see some cases. In the last few years, stock markets have performed badly. This bad performance from markets will obviously affect mutual funds performance too. So if a mutual fund has not given double digit returns, can we conclude that mutual funds are bad investments? No.

Sandeep asked a question related to this 

I was told that HDFC Top 200 is an excellent fund . But I invested around 50,000 in that fund last year and now my fund value is near 46,000 . Is this fund really good ?

This kind of questions come to all the investor’s mind, this happen when you dont know how exactly you should judge a mutual fund’s performance. The only way here to say is HDFC Top 200 did good or bad in last 1 yrs is to see if its return is more than its benchmark or less than its benchmark and to what extent?

HDFC Top 200 example 

If you look at HDFC Top 200 returns in last 1 yrs from today (27th Apr 2012) , its return has been -9.8% . Now anyone hearing that kind of return will scream – “Oh .. thats really bad” . But when you look at its benchmark (which is BSE 200) , you can see that its benchmark has given around -12.06% So you can clearly see that HDFC Top 200 has outperformed its benchmark by 2.26% which means that it has done a better job.

Note that mutual funds have stocks as the underlying assets in which they invest, so mutual funds performance will depend totally on stock markets performance and in last 5 yrs, its not mutual funds which have performed badly, its actually stock markets, Mutual funds just mimick the portfolio’s in some manner and the real parameter of how good or bad they have done is to see how they have performed compared to the risk-free benchmark they are following.

Now coming back to the same example of HDFC Top 200 , it has given around 22.6% returns CAGR in last 3 yrs , but its benchmark (BSE 200) return was just 16.2% , hence you can say that HDFC Top 200 has done a good job and outperformed its benchmark by 6.2% on yearly basis, thats really a good number.

Escorts Tax Plan Example 

Now lets look at 5 yrs performance of a tax saving fund called Escorts Tax Plan , The fund has give -15% return on absolute level in last 5 yrs (1 lac became 85,000) and an agent can say – “Sir – markets were doing badly in the same time, thats the reason the fund has given bad return’s , in future it would do great” . In this case all you need to ask is – “Fine, I can understand that market performance affects fund performance, but has it performed better than the risk-free benchmark it was following ? “

If you look at its benchmark “Nifty”, it has given 24% positive return in the same period. Means that the fund has performed worse than the index which is totally free, while the fund has not performed even after bring run by professional fund managers. Then whats the use of that fund.

So now you have a simple rule to judge a mutual fund performance

  • If Fund Performance > Benchmark  – The fund performance was good
  • If Fund Performance < Benchmark  – The fund performance was bad

Note that the duration should be good enough like more than 1 yr atleast to say anything and the gap between the fund performance and benchmark performance should also be considerable. You can say that a fund was bad just because its returns were 8% and benchmark was 7.8%. that is very much close and does not conclude much.

Now a fairly good way of choosing a mutual fund is just based on how it has performed in last many years compared to its benchmark. So I am putting up some top funds which has done very good compared to its benchmark

Some Top Mutual Funds vs Benchmark Returns

Following is some of the very good potential mutual funds for 2012 and they are really doing good overall . Lets see their returns overall for 5 yr and 3 yr timeframe along with their benchmark returns. You can see some funds outperformed their benchmarks with huge margins . For example Quantum Long term equity fund has return 28.38% in 3 yrs compared to just 14.78% from its benchmark which is Sensex . Thats 100% more , really brilliant .

Mutual Funds performance vs Benchmark performance

So overall the learning is that if you want to find out some good performing mutual funds , you should be looking if a mutual fund has outperformed its benchmark over several years with a good enough margin or not . If it has consistently done that , you can be clear that the fund management is going well .

How often do you look into benchmark ? What else do you think should be looked at while judging mutual funds ?

Subscribe via RSS or Email:
What do you want to read about
Mutual Funds Life Insurance BankingHealth Insurance Credit Report and ScoreMost Commented ArticleReal Life Experiences Share MarketLoans Real Estate Income TaxCredit Cards For Begineer Investors Succession Laws EPF ULIP Product ReviewsBest of Jagoinvestor Other Products & Concepts How-TO GuidesBooks, Launches, Initiatives Investors Myths Psychology & Wisdom PPF General  
Buy Jagoinvestor Books in Ebook Format

{ 124 comments… read them below or add one }

1 Hitesh Shah May 2, 2012 at 10:59 am

timely disbursement of loan will beat inflation & price rising, irrespective of charging interest rate.

Reply

2 Mithun May 2, 2012 at 11:04 am

Nice write up. Simple and to the point!

Reply

3 Manish Chauhan May 2, 2012 at 1:16 pm

Thanks Mithun !

Reply

4 vivek umrao May 2, 2012 at 11:20 am

Because of speedy process and hassle free repayment options.

Reply

5 Aparna CK May 2, 2012 at 11:34 am

Hi Manish,
Good article; boosts the investor confidence in MFs.
Some days ago you had written about banking ombudsman and a person getting 100rs per day as compensation.
Is the same applicable to LIC? We surrendered an endowment policy 2 months ago and they said march is yr end, so the money will come in april 1st week and now it’s may 1st week, still we have not received money. It’s not a small amount and it’s affecting us. What can be done to get the money along with compensation?
Regards
Aparna

Reply

6 Vivek K May 2, 2012 at 11:51 am

I think you should escalate the matter to IRDA.

Reply

7 Jassi May 2, 2012 at 11:58 am

Hi Aparna,
I also surrendered my policies some 15 days back and have got the money now.
You have to follow up many number of times and keep calling at their where you submitted the policy documents along with surrender form.
Yes they are slow etc etc, but if you keep following, it should be done.

All the best.
Rgds,
Jassi

Reply

8 Manish Chauhan May 2, 2012 at 1:14 pm

You will have to check with Insurance ombudsman for this

Reply

9 Vivek K May 2, 2012 at 11:40 am

How do you decide which benchmark – Nifty, Sensex etc to chose for any particular MF?

Reply

10 Manish Chauhan May 2, 2012 at 1:15 pm

Vivek

Its actually very clear because of the mandate of the fund , If a fund wants to invest 50% in large cap and 50% in medium level companies , but wants to make sure it can invest in top 500 companies , then its the index which mimics this is BSE 500 , so clearly it will be the benchmark .

If a fund wants to invest in IT companies only , then its benchmark is obvious at CNX IT

Reply

11 Vivek K May 2, 2012 at 1:40 pm

Thanks Manish. Is there any place I can find list of all benchmark indexes in India?

Reply

12 Manish Chauhan May 3, 2012 at 11:01 am

Moneysights.com gives the benchmark for all mutual funds

Reply

13 Rahaman September 19, 2013 at 1:21 pm

Hi Manish,

I was exactly looking for this info as I often struggle to find what is the right benchmark for my fund. I found moneysights.com is no more available. Is there any place from where we can find this info?

Or at least, can someone explain me what does the different benchmark that we see on moneycontrol stand for? Then from the fund details I am interested in, I can conclude the benchmark

Reply

14 Manish Chauhan September 25, 2013 at 2:14 pm

I suggest you look at livemint and morningstar websites too !

Reply

15 Aparna CK May 2, 2012 at 11:41 am

Ignore the query in previous comment. Got the info here: http://www.jagoinvestor.com/2009/06/consumer-complaints-and-grievances.html

Reply

16 Jassi May 2, 2012 at 12:53 pm

Hi Manish,
I read one more article today…
http://business-standard.com/india/news/big-funds-scoresafety/473117/

Quoting from the article on HDFC equity and HDFC Top 200—-
“These funds are very large. For instance, both the HDFC funds have assets under management (AUM) of around Rs 10,000 crore. And we feel that their ability to give as good returns as compared to smaller funds is limited, as such funds with bigger AUMs are giving lower returns.”

What do you think of this?

Regards,
Jassi

Reply

17 Manish Chauhan May 2, 2012 at 1:12 pm

Jassi

While there may be some element of truth to it , however dont take it as filtering criteria . A big fund has its own advantage and especially Top 200 is in good hands (Prashant Jain) .. There is no statistical proof why big funds should do bad compared to smaller one’s ..

Reply

18 bharani May 7, 2012 at 3:44 pm

Hi manish,

After reading your blog about the need for financial planing, I have hired a CFP and he is well-informed. I am doing a SIP os hdfc top 200 till today, when checked his opinion about the same, he is of the view that HDFC Top 200 fund’s expense ratio is more when considering the AUM they have. AUM should be less with such a large AUM number and he asked me to switch can robecoo equity fund whose expense ratio vs AUM ratio is better compared to Top 200. And considering other factors like std. deviation, alpha, beta..

whats your say..

Reply

19 Manish Chauhan May 8, 2012 at 1:09 pm

Yea .. I thikn that makes sense ..

Reply

20 Gunjan May 2, 2012 at 1:33 pm

dear manish
i am reading jago investor from last 2 months. you are really helping to solve financial issues.
my husband is going to purchase a insurance policy (birla sunlife forsight plan gauranteed option http://insurance.birlasunlife.com/ProductsSolutions/IndividualSolutions/WealthwithProtectionSolutions/BSLIForesightPlan/tabid/427/Default.aspx) for better return. we already have a term insurance plan HDFC click 2 protect. now please suggest me that we should go with this plan or we should go with sip (mutual funds) ?
thanks
Gunjan

Reply

21 Manish Chauhan May 3, 2012 at 11:02 am

Dont go for this plan , just go for SIP in mutual funds

Reply

22 bharani May 7, 2012 at 3:49 pm

Hi manish,

would you advice going for a sip on a weekly basis or fort-nightly or monthly basis.. since the fluctations are more.. we can average well if its for a short duration..whats your say..

Reply

23 Manish Chauhan May 8, 2012 at 1:07 pm

I would suggest monthly basis only

Reply

24 Ranju May 2, 2012 at 3:18 pm

Do you think we should compare it to AAA Bond Yield???

Reply

25 Manish Chauhan May 3, 2012 at 11:00 am

Ranju

Compare WHAT with AAA bond ?

Reply

26 Anurodh May 2, 2012 at 3:40 pm

Hi Manish,
There is a notion in the market that MFs are very economical one as they do not charge the entry and exit fee. As, it is the matter of fact that there are no free lunches in this market.

MFs do charge but the entire charges are spread over the period and at the same time to understand the MFs’ charges is not to the everybody’s understanding.

It would be good if you can write something on the charges of MFs.
Secondly, there are other things very crucial for understanding the MFs real picture in the fact card like, churn ratio, expense ratio, cash in hand, peer returns ect.
Capsules on these topics will certainly enlight the readers for taking an informed decision. As most of the time MFs are purchased on sheer recommandations of friends, relatives, peers or agent.

with regards,
Anurodh

Reply

27 Manish Chauhan May 3, 2012 at 10:59 am
28 RAJKUMAR BHATIA May 2, 2012 at 6:40 pm

I have a large sum of AED One million invested in the mutual funds, current NAV is 50% of the face value, please suggest/recommend a remidy to come out from the huge lose

Reply

29 Manish Chauhan May 3, 2012 at 10:53 am

Mostly you are in a bad fund and it has performed very very badly , how has the fund done compared to the benchmark ? “Come out of huge loss” is a myth , note that the fund will just perform from this point , now it can perform good in this same fund or can do awesome in something else ? It has no relation with past . It can go down also

Reply

30 Divyesh Patel May 2, 2012 at 8:36 pm

Good article Manish.
But as an investor, I should not worry about how well is the index performing, the Fund Manager should be good enough to select the stocks to provide more returns to investors. Index is not performing well does not mean all the companies are not doing well. During this period the fund’s portfolio can be adjusted to move funds from worst to worse and worse to bad for maintaining better absolute returns. I think this is how the funds in your example are outperforming the benchmarks.

Reply

31 Manish Chauhan May 3, 2012 at 10:49 am

Yes .. thats exactly what i am saying , it a index has performed worst , then the fund should perform just “bad” , thats relative good performance , you cant expect 30% return from a fund when index has given -40%

Reply

32 pattu May 2, 2012 at 9:06 pm

Manish, I think the most important benchmark for comparing a MF or for that matter any financial product is the rate of interest used in calculating the goal for which you invest and rate of inflation used. As long as the fund is performing comfortably above these numbers, it really shouldn’t matter if the fund is 3* or 5*. If this happens for most years (there will be years like the last one! when every fund equity diversified fund had negative returns) it should be okay.

What I find quite disconcerting is even financial planners when they dole out advice in blog are always after more returns, more alpha etc.
In the name of financial literacy people tend to over think their investments constantly worrying about top performers. A sense of contentment is important while investing.

Reply

33 Manish Chauhan May 3, 2012 at 10:47 am

Yes Pattu , you are looking it from goal planning point of view . While this article just talks about given a group of mutual funds how do you say if a particular mutual fund performed “good” or “bad” in general . Its on absolute level .

While you are talking from “metting expectations point of view” .You can expect just 8% and in that case a fund will be “good” , but if someone else has expectation of 15% , then it would be bad. so its very much dependent on a person thinking, while we are talking about a universal way of looking at it irrespective of how people look at it on personal basis. I hope you get my point ?

Reply

34 pattu May 3, 2012 at 12:04 pm

I understand. Given 3 funds bench marked against the same index an investor should not worry about which is giving more returns as long as each of them outperform the goal planning parameters. In many cases it is easy to find 3-5 fund which do.

My point is I find even financial planners dont adhere to this. Perhaps they are worried about losing clients and perhaps because most investing is not done with goals in mind.

Reply

35 Jatin May 2, 2012 at 9:35 pm

Dear sir,
I am planning to buy Kotak capitalmultiplier. Is it better one? Around 25000 rs is to be filled for 15 yrs per annum and i will get 4 to 5 lac sum assured at 15 yrs, 4-5 lac life insurance during 15 yrs and i will also get 50000 rs every yr thereafter for next 15 yrs.

Reply

36 Manish Chauhan May 3, 2012 at 10:44 am
37 Jatin May 2, 2012 at 9:48 pm

Dear sir,
My advisor is insisting me to take LIC jeevan anand by invrsting 62000/yr and i will get aroung 1.32 cr after 35 yrs plus 25 lac life insurance. His justifications are;
1. LIC will give around 9% return up to 35 yrs while banks may decrease interest rates in coming yrs (there is no surity as earlier banks were giving around 14-15% interests)
2. Mutual fund will not surely give you more than 8 to 9% return after 35 yrs (justification is you can compare last 30 yrs return in mutual funds in developed countries as indias growth rate is reducing)

Reply

38 Manish Chauhan May 3, 2012 at 10:43 am

Jatin

LIC will give you no more than 5%

Reply

39 Jatin May 2, 2012 at 9:50 pm

Sir,
what are best options for short term investments (6-9 months)?
I have seen most of all liquid funds hadnt given more than 6% return in 6-9 moths.

Reply

40 Manish Chauhan May 3, 2012 at 10:43 am

The best option for short term would be FD in my opinion

Reply

41 Sachin May 2, 2012 at 11:45 pm

very good article Manish..I got one question after reading this, I have a demat account with ICICI Direct, and I dont see a option to buy INDEX, could you help me as How can I buy INDEX (Nifty or Sensex) for longer term.

Reply

42 Manish Chauhan May 3, 2012 at 10:40 am

sachin

You can buy INDEX FUNDS or ETF’s . search for ETF’s on their portal

Reply

43 Sudarshan May 3, 2012 at 7:54 am

Is there any website to check the benchmark performance of funds… All these sounds greek and latin to me!! I invested in Mutual fund for the past 3 years and clean wiped it recently to invest on property!! I did the investment based on my father’s friend recommendation… But now I want to do it on my own, afterall it’s all hard earned money and I would like to know clearly what is going on when I invest..

I would like to thank this blogger as well as the people who comment here, as the things posted here of great value and so are the comments… So coming back to my question how do I check the benchmark of a fund as I am starting fresh my MF investments… This time I would like to go long-term. I am 23 now (ya I am doing business from 19yrs with) and I would like to have a good investment portfolio in the coming years :)

Reply

44 Manish Chauhan May 3, 2012 at 10:37 am

You can get the benchmark on moneysights.com

Reply

45 SIVA PRASAD May 3, 2012 at 8:43 am

Dear Manish,

Usually, I compare funds with its Catergory Performance which is readily available.
To know its benchmark performance we have to read funds Aim and its strategy, then only we will come to know what is its benchmark. After that we can check benchmark performance. So it is lengthy process. Any way, new angle to look fund perforamnce. Thank You
R Siva Prasad

Reply

46 Manish Chauhan May 3, 2012 at 10:37 am

Siva Prasad

You are doing a right thing , however this additional step will check the fund performance against its benchmark which I think is more important . Its like you want to marry a girl , and that girl is better than other 2-3 girls you have seen till now . But how do you know that she is right one ? She should pass the criteria which is minimum fit for you ? Thats benchmark !

Reply

47 suril May 3, 2012 at 3:29 pm

What you think about Reliance Regular Savings Fund? I have SIP of 2000 PM in this fund. Should I continue with it?

Reply

48 Manish Chauhan May 3, 2012 at 7:14 pm

Suril .. its a good fund , you can go with it

Reply

49 Safal Niveshak May 3, 2012 at 4:38 pm

One important metric I use is to see who the fund manager is and how long has he been associated with the fund. After all, a mutual fund doesn’t manage my money, the fund manager (who can be an eccentric individual) does. So the past track record of the fund combined with whether it has been managed by the same fund manager for a long time (across market cycles) is what I look for.

Reply

50 Manish Chauhan May 3, 2012 at 7:08 pm

Yes .. thats really something important to look at .

Reply

51 Piyush May 3, 2012 at 9:36 pm

Hi Manish,
When you do past performance analysis of any MF like 1 yr or 2yrs or 5yrs block,
what is the start and end date considered for these time blocks ? Does it go by comparing today’s NAV vs NAV on exactly same date but last year? OR does it go by comparing NAV on 1st April 2012 vs NAV on 1st April 2011 ? (choosing date as April 1st due to being new FY)

Awaiting your response….

Reply

52 Manish Chauhan May 4, 2012 at 5:15 pm

Piyush

Actually u can do anything .. both should be ok … the main idea is to see that over a long term period it has done good . Using any of what you mentioned should work !

Reply

53 Jagdeep Wagh May 3, 2012 at 9:54 pm

What you think about my following SIP….????

HDFC TOP 200- 1000 pm (since 2011)
ICICI Focused Bluechip- 1000 pm ( since 2011 )

I m looking for my son (1.6 yrs) education….
for 15 to 18 yrs….
how much money i should invest to get min 30 lac & max. no limit….
should i continue it above funds…

Regards,
Jagdeep ( Maharashtra)

Reply

54 Manish Chauhan May 4, 2012 at 5:14 pm

As I already said , its good

Reply

55 Jagdeep May 3, 2012 at 10:23 pm

what do i do for my child education???

i am ready to invest 5000 pm…. for 15 to 18 yrs…
where should i invest abv money to get 40 to 50 lac……

plz suggest me some excellent fund…..to get this goal…..

is following funds gud to invest ???

HDFC TOP 200
ICICI Focused Bluchip
IDFC Prem. Equity
Relience Gold Fund

if no so plzzzzzzz plzzzzzzzz suggest me some funds with amount in per fund

plzzzzz

Reply

56 Manish Chauhan May 4, 2012 at 5:13 pm

YEs .. these are some good funds .. to start with go with these funds !

Reply

57 Jagdeep May 4, 2012 at 5:38 pm

Thanks a lot Manish…..

Reply

58 Alok May 4, 2012 at 11:31 am

Dear Manish,

I am 30yrs old, married+1 kid. My running MF Investments through SIP are as below:
– HDFC Top200(3000 pm)
– HDFC Prudence(3000 pm)
– IDFC Premier Equity (3000 pm)
– Reliance Gold Saving Fund (3000 pm)

I am planning to continue this for atleast 15 yrs. Later I would move the lumpsum to a good Balanced fund(like HDFC Prudence) or Gold ETF for much safer ride..
Do you think the approach is right? Do you think that above investments will give me better returns than FDs/PPF or other govt funds in 15 yrs timeframe considering market crash, recession etc eventually.

Regards,
Alok

Reply

59 Manish Chauhan May 4, 2012 at 5:04 pm

Alok

These funds are good and your plan is on right path , just make sure that you also have a defined asset allocation and you stick to it with each passing year

Reply

60 SANJAY NARAYANAN May 4, 2012 at 11:37 am

ENLIGHTENING!!! GOOD EFFORT MANISH!!KEEP IT UP

Reply

61 Manish Chauhan May 4, 2012 at 5:03 pm

Thanks

Reply

62 MrP May 4, 2012 at 11:49 am

i haven’t thought on this before..
Thanks Manish for writing up this article.. It would definitely help in future.. as i have 1 MF from ICICI bank.. its not even 1 yr old.. So can;t judge.. Lets see what happens next..

Reply

63 Manish Chauhan May 4, 2012 at 5:02 pm

You should look at its performance in last 6 month and compare it with its benchmark . However that should not give you much idea , still you get some idea

Reply

64 Sreedhar May 4, 2012 at 5:16 pm

Hello Manish,

Asusual,Thanks for the good article. It is informative.

As you suggested in other comments, i went and verify the moneysights.com for ICICI Prudential “LifeTimeSuper-Flexi Growth”. I could not able to find or i am not searching in a right way. Do you think this one is going good right now? Guide me.

Reply

65 Manish Chauhan May 4, 2012 at 5:20 pm

You are not finding it because its not a mutual fund , its actually a ULIP

Reply

66 MrP May 4, 2012 at 5:25 pm

Hey manish,
does this benchmarking do not apply on ULIP?

Reply

67 Sreedhar May 4, 2012 at 5:29 pm

Thanks for quick reply.

What about ULIPs? Dont we have benchmarks for these things? How can we evaluate whether this is going in right direction or not?

Reply

68 Manish Chauhan May 4, 2012 at 5:38 pm

It does, but I am not sure if there are benchmarks defined for ULIP’s and if the data is available with ease just like mutual funds

Reply

69 Jig May 5, 2012 at 2:11 pm

I am investing in HDFC TOP 200 since November 2010 through SIP.
Mycurrent holdings showing -5%.
Even though i utilized the opportunity of lumsum adding during market fall. I invested 10K during fall .
So whats the matter if FUND is showing positive return but you can be still in negative holding?

thanks

Reply

70 Manish Chauhan May 8, 2012 at 4:28 pm

Jig

Yes .. in that case you should check the SIP return of the Index .. Truely speaking it would be a little tough to find out , so one has to explain, but still just because there is negative return from your fund for you , does not conclude that the fund was bad or good . Always see Benchmark return

Reply

71 Jatin May 5, 2012 at 10:30 pm

Sir,
Right now I have started investing 500/month in HDFC top 200 and i want to invest in other 2 funds. Can you suggest me?

Reply

72 Manish Chauhan May 8, 2012 at 2:54 pm

There are some funds name in the chart at the end of this article

Reply

73 Atul Mittal May 8, 2012 at 3:04 pm

The benchmark used by mutual funds are usually price only indices like NIFTY which doesn’t account for dividend incomes.. this is misleading.
As Mutual Funds account for dividend income also in their own performance, they should show total return indices as their benchmark, not price only indices..

NSE website also provides total return index value for nifty 50. But no one mention that as benchmark, so that their active performance remains inflated.

Reply

74 Manish Chauhan May 8, 2012 at 5:04 pm

Thats a good point ,Do you know any source where we can get correct data in that case ?

Reply

75 Atul May 8, 2012 at 5:25 pm

You can check any MF performance report, and compare that benchmark return with actual NIFTY(Price only as well as Total returns) from NSE website.
You will be able to find out that benchmark shown usually would be price only one.

Reply

76 Manish May 11, 2012 at 5:01 pm

Isn’t the 1 year return of benchmark better than HDFC top 200 ? HDFC top 200 1 yr return 9.8% and benchmark 12.06% .. So bench mark has outperformed the HDFC top 200 by 2.26 but you have written that HDFC Top 200 has outperformed its benchmark by 2.26%.

I’ve copied below lines from above post for your refernce.
If you look at HDFC Top 200 returns in last 1 yrs from today (27th Apr 2012) , its return has been -9.8But when you look at its benchmark (which is BSE 200) , you can see that its benchmark has given around -12.06% So you can clearly see that HDFC Top 200 has outperformed its benchmark by 2.26% which means that it has done a better job.

Reply

77 Manish Chauhan May 11, 2012 at 5:43 pm

Look again Manish .. its -9.8% and -12.06% .. so -9% is better than -12 :)

Reply

78 Manish May 11, 2012 at 7:40 pm

ooopssss I missed the negative part ….. Sorry my mistake….Thanks for clarification :-)

Reply

79 Jagdeep May 13, 2012 at 6:04 pm

Myself Jagdeep Frm- Thane(Maharashtra) Age- 31 yrs
A.I.- Upto 3 Lac Son- 2 Yrs ……..

I want to Invest Rs 7000 PM…. in mutual fund through SIP…..
for long term…

Goals -1- Child Education- 30 to 40 Lac ( 15 to 18 yrs)
2- New Home Down Paymnt – 10 to 12 Lac ( 5 yrs )
3- Retirement Planning – Yet not decided ( Confused )

Invested Amt-

1-Term Plan – 60 lac Prem.6K (Aviva-i-life) Since 2012
2-Mediclaim Floater -2Lac Pem.5K ( AppoloMunich) Since2010
3-Jeevan Saral – SA- 2.5Lac Prem. 12 K ( LIC ) Since 2012
4-ULIP-Group Unit Link Plan- Prem.12 K (Bajaj Allainze) Since 2011
5-New Bima Kiran- SA-1 Lac Prem. 1 K ( LIC ) Since 2002

6- RD – IN Co-Oprative Bank- Prem – 2 K ( FOR 2 YRS ) – 2012

## HDFC TOP 200 – 1000 PM Sonce 2011
## ICICI FOCUSED BLUECHIP- 1000 PM Since 2011….

Shall I Get my goals with this Investment…plz sugest if your ans is no …
plz make my portfolio better….

Regards,
ROHAN
(M)- 09819496501

Reply

80 Jagdeep May 13, 2012 at 6:06 pm

My Son Rohan is now 2 yrs old….

Reply

81 Manish Chauhan May 14, 2012 at 6:20 pm
82 Venugopal May 20, 2012 at 4:51 pm

Hi Manish,
I do follow your posts when ever i find time. You bring in some of the basics which we tend to forget due to xyz reasons.
In this article, i would define performance in two ways – a.before i select to invest b.after i invest.
Before invest – I would consider your way/kind of percentile calculation(termed as benchmarking – which might differ by few small number considering some comments raised by followers on dividents) to choose it.
After investing – I would rather look at the percentage of return i get. I will not be happy stating that my funds are doing better than its benchmarks, when both are in negative.

Reply

83 Manish Chauhan May 21, 2012 at 5:37 pm

Venugopal

In that case I would say you still have not got the point that if a fund has given a negative return, still it can be a great performance . Beating the benchmark shows that the fund has done what it was bought for . Truely speaking if you look in deep, you buy a mutual fund to beat its benchmark , nothing else .. else you can just buy an index fund .

Manish

Reply

84 Ajay May 21, 2012 at 7:52 pm

Hi Manish
I am doing a SIP of Rs. 5000 into Reliance Diversified Power sector fund for more than 3 years now. Initially it was doing good, but of late I see the fund value less than the invested value. Please suggest me which is the good option – to continue the SIP or to invest in some other fund. (My investment horizon is 5 years)
Thanks

Reply

85 Manish Chauhan May 22, 2012 at 7:40 pm

Its a sectoral funds , i would say see its benchmark performance

Reply

86 Ajay May 22, 2012 at 7:57 pm

Thanks Manish. Fund is doing better than the BSE Power index.

Reply

87 Manish Chauhan May 23, 2012 at 2:03 pm

Then its doing good i would way !

Reply

88 Jatin May 22, 2012 at 9:16 pm

Kindly suggest your views on below mentioned funds; As I want to invest with equity oriented plans, I have shorted out some fund. I want to choose any 2-3 out of 9 funds.
ICICI Prudential dynamic plan
ICICI prudential discovery fund
ICICI prudential FMCG fund
SBI magnum sector umbrella – Emerging business fund
HDFC midcap opportunities fund
DSP blackrock microcap fund
DSP blackrock natural resources and new energy fund
Goldman sachs gold exchange traded scheme
Birla sunlife 95 fund

Reply

89 Jatin May 22, 2012 at 9:18 pm

Sir, I have long term horizon for above mentioned funds

Reply

90 Manish Chauhan May 23, 2012 at 1:58 pm

Jatin

You should choose just 3-4 funds maximum . from where have you listed these down ? And on what basis ?

Reply

91 JATIN May 23, 2012 at 8:33 pm

Sir,
I want to invest only in 2-3 funds from above. I have found out funds as i think person should invest in emerging fields thats why i have sorted out SBI emerging business MF, DSP micro cap MF, DSP nat. resources and new energy fund. I just want to start with 500 rs SIP.I have already started HDFC Top 200 G. In debt portion, I am investing in bank FD and PPF.

Reply

92 Manish Chauhan May 23, 2012 at 10:11 pm

I think you are just complicating things .. if its 500 per month , i think you should just look at a balanced fund like HDFC Prudence . thats all

Reply

93 JATIN May 24, 2012 at 9:12 pm

I just wanted to invest in small/micro cap companies that why I have selected above ones.

Reply

94 mithlesh May 29, 2012 at 11:39 am

dear manish,
my financial advisor is suggesting investment in sip as follows
DSP Black rock top 100 equity (Rs 2000)
HDFC Midcap opportunity fund (Rs 2000)
ICICI dynamic fund (Rs 1000)

need ur advice…..shud i go with this?

regards…

Reply

95 Manish Chauhan May 29, 2012 at 9:34 pm

I do not know the background hence I can not comment , the financial advisor might have suggested it as per your situation and requirements .

Reply

96 vijay June 18, 2012 at 8:20 pm

Hi all,

I think i have made a mistake by investing in ICICI prulife lifestage RP. I have paid 3yrs premium of 30000Rs every year and i have an outstanding due of 30000Rs for next month ( 4th Yr) currently my fund value is 70000Rs (90k invested till now) the fund is currently 60% equity and 40% debt.. I raised a call with ICICI prulife they informed i will get 96% of the fund value after 5yrs its 100%.. Please advice if i need to continue to invest or shall i make it to debt fundor shall i break and come of this fund with 96% and invest the money elsewhere.

Reply

97 sowmya June 29, 2012 at 3:33 pm

Hi Manish,
I am new to financial planning . I am extremely impressed by some of the articles in this site jagoinvestor. Some of them have been extremely useful to us. Thanks for ths same.Also appreciate the prompt response in your site.
I am new to Mutual funds and am looking forward to investing in them. Is there any beginner’s guide on how to read mutual funds performance and how to choose what to invest on. Also is SIP better or one shot investment is good. I am also not familiar with termniologies like small cap,medium cap etc.
Thanks

Reply

98 Manish Chauhan June 30, 2012 at 10:05 am

Sowmya

You can read some old articles on mutual funds here : http://www.jagoinvestor.com/archives and also ask your questions on forum : http://www.jagoinvestor.com/forum

Reply

99 Pradeep July 3, 2012 at 12:24 pm

Dear all,

What is your opinion about Reliance Growth , I am invested since last two years but its performance is not so good as compare to other funds like IDFC Premier equity, HDFC Top 200, DSP Black Rock Top 100.
Should switch to some other fund fund Like HDFC Equity or ICICI Pru focused bluechip
Regards
Pradeep

Reply

100 Manish Chauhan July 4, 2012 at 9:08 pm

Reliance growth is a mid cap fund , you cant compare it with HDFC Equity , over last few years Reliance Growth has not been in limelight :)

Reply

101 A V Gosavi July 5, 2012 at 8:22 am

Dear Manish,

I am glad you have brought in this sensitive and very much critical point of view for those who know not how to satisfy themselves about their investment as a whole. The Benchmark is common and reference point on the basis of which whatever we do has to be weighed.
But for a common man what matters is the absolute return and not relative return with reference to NIFTY or BSE index. When MF and Stock returns are reported by various Newspapers / Bulletins / websites, are these returns wrf to Index or are these absolute wrf to NAV of X date to NAV of Y date?
Secondly, of these two methods, there is another method which I use for my simplicity. I take the purchase value as base and NAV value as variable and calculate percentage difference and say that this is return I have gathered. This calculation is like Bankers’ interest calculator. I find it more rational and satisfying to me because I have my own benchmark i.e investment value with which I must compare my returns. what do you think?

Reply

102 Manish Chauhan July 5, 2012 at 10:18 am

Can you explain with example your method ?

Reply

103 A V Gosavi July 5, 2012 at 6:57 pm

Dear Manish,
You see, Manish: I have purchased ICICI pru focussed Bluechip in 2008 for Rs.20,000/- at NAV Rs.10.23. Now the value of Rs.20,000/-(allocated units 1955.990) fund has grown up to Rs.31,800/-NAV as on 30.6.2012 was 16.26. So what is the return of Rs.20,000/- to me? 100 x 11000/20000 x 4 = 13.75%. Here, 4 years is the period of investment. 11000 is the value by which investment has grown up. Thus, I say that I have got return@13.75%. Do you agree with rational and method?

Reply

104 Anand July 6, 2012 at 12:32 pm

Use XIRR formula and excel to arrive at the exact return. Assuming the purchase date is 1-jun-2008, the return is 12.03%

Reply

105 Manish Chauhan July 6, 2012 at 7:45 pm
106 Krishna July 26, 2012 at 2:17 pm

Hi Manish,

Article says, “example of HDFC Top 200 , it has given around 22.6% returns CAGR in 3 years” but on http://www.moncontrol.com (good source says) it is merely 8% and in last 2 years it is -1.3%?

How 22.6% number you came to?

Regards,
Krishna

Reply

107 Manish Chauhan July 26, 2012 at 9:33 pm

Its 2.26% , not 22.6!

Reply

108 krishna July 27, 2012 at 1:12 pm

Hi Manish,

Is there typo in the article then? I am referring to following para:

“Now coming back to the same example of HDFC Top 200 , it has given around 22.6% returns CAGR in last 3 yrs , but its benchmark (BSE 200) return was just 16.2% , hence you can say that HDFC Top 200 has done a good job and outperformed its benchmark by 6.2% on yearly basis, thats really a good number.”

Regards,
Krishna

Reply

109 Manish Chauhan July 28, 2012 at 7:24 pm

Actually no , you are right about that 22.6% number, but now the point is that the numbers are true as on that date when the article was written and is mentioned in the article (27th Apr 2012)

Reply

110 Dr.Panduranga Rao September 25, 2012 at 10:09 pm

Dear Manish,
I am investing n HDFC top 200(G) and HDFC equity(G)in SIP since 18 months. now I want to discontinue any one of them and invest the same in ICICI pru focussed blue chip. what is your opinion

Reply

111 Manish Chauhan September 26, 2012 at 11:00 am

hdfc TOP 200

Reply

112 radhe November 12, 2012 at 3:10 pm

I think its wrong…
“”In the same way a Small Cap Mutual Fund would have CNX MID CAP.””
instead of CNX MID CAP it would be CNX Smallcap .

CNX Smallcap Index is designed to reflect the behaviour and performance of the small capitalised segment of the financial market . Manish SIR Kindly reply .

Reply

113 radhe November 12, 2012 at 3:40 pm

How 3yr return is more than the 5yr return in both Fund performance and in Benchmark. I mean to say in the Image Quantam has 5yr return as 11.92% and 3yr return as 28.38 also benchmark is 3.78 % , 14.78% respectively .

Is it that the market didn’t perform well in the last 5year and it performed well in last 3yr . Now what about 5-3=2 . So in between this 2yr how did the market performed.???

Reply

114 Manish Chauhan November 15, 2012 at 7:51 pm

Why cant it happen . It can happen that in last 3 yrs performance was good , but overall 5 yrs was not that great !

Reply

115 Neeraj November 30, 2012 at 12:41 am

Hi Manish,
Thanks for the useful insights on the topic.
Can you please tell me how do I get this data of the Benchmark performance and MF performance.?

Reply

116 Manish Chauhan November 30, 2012 at 10:46 am

There are various websites from where you can get it like moneycontrol.com or valueresearchonline.com .

Reply

117 Karthikeyan May 21, 2013 at 12:26 pm

Manish, this is a really good article. I have been investing in mutual funds since 2006 and I have always relied on the MF ratings provided by ValueResearch & MoneyControl to decide on which MF to invest. Only now, after 6 yrs of investing in MFs, I’m starting to understand (some of) the science behind the valuation. Thanks for this!

Do you have a similar article on how to evaluate ULIPs? I’m not sure which benchmark can be used as its a mixed investment (insurance + markets). Should I evaluate based on IRR (sum of cash outflows + current value), or is there a better way to evaluate the return?

Reply

118 Manish Chauhan May 25, 2013 at 5:58 pm

You cant benchmark ULIP’s as there is no standard format and no clairty on where they invest exactly . I would personally skip them altogether !

Reply

119 Vishal Jain May 29, 2013 at 4:46 pm

Hi Manish,

I have few questions to you. I have read both your books, now I am reading the 3rd one. Also I have enrolled for 100moneyactions program last week. I am 27 yrs old and have following queries –

1. Out of the total savings how much amount should be invested and in which asset classes.

2. I already have a SIP, now instead of a FD or a recurring deposit, can I make investment in a Mutual Fund and as and when I have some surplus amount, can I make further investment in that same folio or will I have to make another investment in a new fund.

Thanks

Reply

120 Vishal Jain May 30, 2013 at 3:35 pm

I would also like to know that while applying for a new term policy, when giving details of existing insurance policies, I have to provide detils of the policies which are paid up for which I am not paying premium as well? Also last year I applied for a term policy with aviva for which my premium was increased because of some health issues for which i refused the policy and later i purchased a policy from kotak in which all my health report was correct. Now while applying for the new policy, do i need to give details of the aviva policy as well which i refused?

Reply

121 Manish Chauhan May 31, 2013 at 4:18 pm

Are they asking for it in their form ? If yes, you have to give it

Reply

122 Vishal Jain June 1, 2013 at 12:27 pm

I am applying for bharti axa online term plan. There is a column of insurance history with other companies, where it is written to provide details of existing life insurance cover with other companies.

Reply

123 Manish Chauhan June 4, 2013 at 4:41 pm

Yes, you have to give that info

Reply

124 Manish Chauhan May 31, 2013 at 4:40 pm

Hi Vishal

1. You should invest the maximum money you can . There is no minimum like that

2. You can invest in the same Folio , its possible .

Reply

Leave a Comment