Would you invest in such a mutual fund?

In this post, I  would like to pose two questions. The first is the one that you see in the title.

Using the Fund A vs. Fund B mutual fund analyser, the normalised NAV growth for the past three years is plotted by choosing fund A as a

fund A as a mystery fund  (revealing the name will render the exercise pointless) and fund

fund B as a mystery index fund (the index is not the official benchmark of the fund, but is certainly a good candidate).

The Ulcer index of both funds is also plotted together. The Ulcer index is a measure of downside risk. It penalised falls from highs and therefore measures investor stress (which was originally and incorrectly attributed to the formation of stomach ulcers!). Lower the Ulcer Index, Lower the stress and lower the portfolio volatility.

1 Would you invest in such a mutual fund?


The NAV is shown in solid lines (right axis) and the Ulcer Index is shown in dotted lines (left axis). The duration considered is the last 3 years.

No over to you? Would you invest this kind of fund? Or if you had held the fund for the last 3 years, be disappointed or happy or be neutral?

Note, I have also deliberately not discussed why I am asking this question. It is not hard to spot after looking at the above graph.

2 What is missing in this data table?

The second question is totally unrelated to the first.  The below table is for Axis Focused 25 (randomly chosen and not the fund mentioned above). It is found in the performance tab of the fund’s page at Value Research.


Now, what information is missing in this table? If you know the answer, do let me know if can find that information elsewhere at their site.

I look forward to your responses.

12 thoughts on “Would you invest in such a mutual fund?

  1. I would invest in the unknown fund. I can stomach the volatility for long term goals.

    I would guess that the duration or the period over which the table from Value Research is created is unknown.

  2. I think the answer of the 2nd question is “R-squared”. This is available in Risk Stat page of Fund Selector section in VRO. However,I will remain eager to know the answer from your end.

  3. Dear Sir,

    1. I would invest in such kind of fund.
    2. If held for 3 years I would be Happy
    3. Throughout 3 years the fund has provided very good downside protection.

    Axis Focused 25 Fund
    Duration for which data is provided is missing.(It understand it is for 3 years)

  4. The graphs Both Mutual Fund A and the Index Fund seem to have roughly the same shape. The troughs follow the troughs and the highs follows the highs.

    It would be helpful to know the price of the Index fund vs the Mystery Fund. If the mystery fund is simply replicating the performance fo the index for the duration of 3 years but is much more expensive to purchase then it makes sense to invest in the index fund.

  5. Very interesting stuff …

    1) If this chart was shown and asked to choose to invest, I would go with fund B. It looks like giving more returns and has more volatility – good for SIP

    2) Is it the upside/downside capture ratio? (which is found in morningstar but not in VRO)

    Now very curious to know the agenda here ..

  6. Unhappy because Fund A NAV is unable to outperform NAV of Index Fund B ( assuming it is benchmark for the Fund A), except in few occasions. Happy because Ulcer Index for Fund A was always lesser than Fund B. So, overall Neutral. I may not invest in such fund as my expectation will always be that my fund will outperform benchmark for majority of occasions. Having said so,I will also check for IRR. If it is above my expectation, I may continue to invest in the fund as having a lower ulcer index for my fund is very much welcome.

  7. More information is needed to take a decision. The performance period is only 3 years. Assuming the index fund represents the benchmark for the category of the fund, no I will not be happy if I am invested in this fund. I would like my fund to at least perform as well as benchmark. While low ulcer index is good, if it is at the expense of not participating in rally it is not good enough. For some time periods the fund actually matched the index fund, but if the review period is say 10 years, that will give some confidence. I personally believe ulcer index is flawed. It prioritizes the low downside risk but doesn’t capture the relative performance among peers.

  8. Would you invest this kind of fund? Or if you had held the fund for the last 3 years, be disappointed or happy or be neutral?

    Before Investing I want to know , what is the goal period (investment period) if it is long term (12+) I wont invest but if it is short term (3-7yrs) I will go for it.

    If I had already invested for past 3yrs, My action again depends on period of investment which I aimed at the point of investment, if it was short term I am happy but if it is long term i will be neutral or fairly disappointed.

    I am not aware about second question!!!!

    But again I am eagerly waiting from your point of view. kindly update us ! 😉

  9. Continuation to my view above why long & short term….
    When my period of investment is short i need to have downside protection, when my period of investment is long my fund has to perform very well when market is performing…, because in long term, fund will outperform (cover) the downfall of fund when market perform etc…

  10. Thank you all for participating. Mr Kumar who made the first comment, got it right. I shall write a detailed post about this.

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