Mutual Fund Performance Analysis: Consistency of returns

Published: October 25, 2015 at 3:01 pm

Last Updated on

A method to analyse mutual fund performance during a particular investment duration in terms of consistency of returns is discussed in this post.

Many mutual fund investors are unable to rationally analyse the performance of their equity mutual fund holdings and often ask, When should I exit an equity mutual fund?. I would like to suggest simply ways in which mutual fund performance can be analyzed objectively. As always, there are multiple solutions to most problems in life, and what is suggested is one such solution. I suggest this, because  this is what I would do.

When it comes to mutual fund performance analysis, the key point to remember is that a fund should be analyzed over the period in which we have held units and ONLY over the period in which we have held units. 

The reason for this is quite simple. Mutual funds invest in securities that are marketed to market. That is the current value of a mutual fund portfolio is equal to the current market value. This current market value fluctuates quite a bit for equity and the rise, fall and amount of fluctuations crucially depend on the period chosen for study.

This is the key reason why you should ignore mutual fund star ratings.

The ratings agency assigns a star rating over a different period than your investment period. Therefore, their analysis will be entirely different from yours.

So unless you can do a peer comparison over your investment period, Star ratings are of no use.

If the investment duration is reasonably long (at least 3 plus years), one can consider using the  Mutual Fund SIP XIRR Fluctuations Tracker Version 2.0. Here you can set the start of the SIP as your own and compare the XIRR of the SIP investment month after month with the benchmark. This gives you an idea of how well the fund has performed wrt to its benchmark for the period in which you invested. If this is reasonable (fund has bet the benchmark for most months), stay invested and do nothing. 

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

If your goal is 15+ years away, I suggest not even looking at the investment performance for at least 4/5 years. After that one can review a bit more frequently.

A more powerful tool is the Mutual Fund SIP Rolling Returns Calculator. Here one can use the total returns indices (values need to updated manually from links provided) from BSE: Sensex, BSE 200 and BSE500 to compare the SIP returns for a given duration say, 5 years with the duration rolled over each business day. This would tell you, how consistently the fund has performed over every possible 5 year duration between any two dates. To learn more about how rolling returns are computed you can check out the corresponding calculator for lump sum returns: Multi-index Mutual Fund Rolling Returns Calculator.

HDFC-Equity-rolling-returns-SIP

Notice that for a 5-year SIP, the fund has reasonably manged to beat the total returns index after accounting for expenses. I don’t know about you, but as far as I am concerned, I am more than happy with that performance. So I continue to hold HDFC Equity (a two-star fund btw).

The point of this post is to to urge you to analyse your fund holdings for the period you have held that. That is likely to give you an entirely different, and in my opininon the most relevant, perspective about what you should do with your fund holdings.

There are many other ways of analyzing mutual fund performance. I have focussed on consistentcy of returns or rather the consistent of outperformance. Once can also consider downside protection with this tool: Mutual Fund Downside Protection Calculator

Do let me know what you think.

Do share if you found this useful
Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.

Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

Leave a Reply

Your email address will not be published. Required fields are marked *