Mutual Fund Rolling Returns Analysis: Franklin India Blue Chip Fund

Regular readers of freefincal would recognize that the blog now has a decent set of resources for mutual fund evaluation and analysis.

I would like to encourage the use of these tools and calculators by publishing analysis of a few mutual funds from time to time. The aim is to make it clear that mutual fund analysis is not rocket science and can be done by anyone with an inclination.

My DIY analysis of HDFC Top 200 has now become reasonably popular. When I published the automated version of the mutual fund rolling returns calculatorsI had used Top 200 again as an example.

In this post I would like to look at rolling returns data for Franklin India Blue Chip Fund, which requires little introduction. Many readers will be aware that FIBC is a 20 year old fund and an extraordinary alpha generator (alpha is the excess returns with respect to the fund benchmark – Sensex in this case).

Before we being a quick explanation of what a rolling return is. Suppose I want to determine fund performance from 1st Jan 2000 to 31st Dec. 2012, I choose some interval. Let say this is one year.

• I calculate the return for the fund and its benchmark from 1st Jan. 2000 to 31st Dex. 2000.
• Then from 2nd Jan. 2000 to 1st Jan. 2001
• Then from 3rd Jan. 2000 to 2nd Jan 2001 and so on until I reach 31st Dec. 2012.
• This ‘rolling’ return is then plotted against the duration used.
• If the funds rolling returns is higher than the benchmarks most part of the graph, you can conclude that the fund has been consistent  in its outperformance.
• Rolling returns give you an idea about consistency of funds performance with respect to its benchmark.

The following graphs were obtained with the  Automated Rolling returns calculator, posted earlier. Since I wanted to analyse FIBCs performance for as long a time period as possible, I have manually entered NAV date from the AMCs website and Sensex data from Yahoo Finance.

1. FIBC vs Sensex (July 1997 to Dec. 2013)

That is an amazing graph! The gap between the fund and its benchmark is a sight for sore eyes! The graph has been normalized (NAV and SENSEX made ‘1’)  from 1st July 1997. Therefore, this fantastic outperformance is valid only in the period displayed.

2. FIBC vs Sensex (July 1997 to Dec. 2013) 1Y Rolling Returns

Now that is not an amazing graph! For rolling returns, the value of the y-axis (returns) does not matter. What matter is this question:

Is the fund above its benchmark for a good part of the graph, or not?

Obviously when we consider one-year rolling returns from Jul. 1997 to Dec. 2013, the fund has not outperformed the Sensex.

So why all this fuss over FIBC?  Watch what happens when the duration use in the rolling returns calculation is increased.

3. FIBC vs Sensex (July 1997 to Dec. 2013) 3Y Rolling Returns

4. FIBC vs Sensex (July 1997 to Dec. 2013) 5Y Rolling Returns

5. FIBC vs Sensex (July 1997 to Dec. 2013) 7Y Rolling Returns

6. FIBC vs Sensex (July 1997 to Dec. 2013) 10Y Rolling Returns

It is clear that longer the rolling return duration (and therefore the investment duration), higher the chances of outperforming the Sensex.

The point is, FIBC is not some magic fund which beats the Sensex year after year. It is a well managed fund which has beat the Sensex comfortably, provided one has shown faith and stayed invested.

The age of no alpha? The quantum of outperformance has decreased recently,  regardless of the rolling returns duration. Does this mean we are entering into an age where it would be difficult to generate alpha? I don’t know.

All I know is this. If we wish to get returns that beat inflation, index investing is more than enough. The need to beat inflation is plain investing common sense. The need for alpha stems from our desire to create wealth or to put it bluntly, our greed.  We should not confuse greed with investing common sense.

The last 5 years? Many believe that the last 5 years has been the most volatile period of the stock market. Although this is not true (proof is here), our view point is most often defined by recent history. So let see how FIBC has fared in the last 5 years.

7. FIBC vs Sensex (Dec 2008 to Dec. 2013)

In the last 5 years, the performance has been pretty decent, if not spectacular.

8. FIBC vs Sensex (Dec 2008 to Dec. 2013) 1Y Rolling returns

9. FIBC vs Sensex (Dec 2008 to Dec. 2013) 3Y Rolling returns

The 1 year rolling returns for the last 5 years again resembles the Sensex closely. The 3 year rolling return is much better.

Bottom line: Only patient investors who have kept the faith in FIBC have been rewarded.

What about SIP returns?  Here is a snapshot of results obtained with the  Mutual Fund SIP Returns Analyzer

The SIP returns for the last seven years has been listed along with lump sum returns.

As you can see, returns have been pretty decent and consistent.

If you are interested in a what if  calculation, that is, if you want to determine SIP returns from FIBC for any duration since inception, you could try this:  Daily vs. Monthly vs. Quarterly SIP

What are your thoughts on the above data?

I do hope you agree with that the above ‘analysis’ can be done by anybody if they have the interest and about 15-20 minutes to spare. I urge you to analyze your funds with the available  mutual fund evaluation tools. I will be more than happy to share your findings in the blog as a guest post if you would like to  do so.

Download the Mutual Fund Rolling Returns Analysis file of  Franklin India Blue Chip Fund vs. BSE Sensex

The following file was made in response to  Ramesh’s comment below.

Download the Mutual Fund Rolling Returns Analysis file of  Franklin India Index BSE  Fund vs. BSE Sensex

The above analysis is based on bare Sensex data. That is one which does not include dividends. Swapnil wanted to know if it would make a difference if the dividends were included. I could not find such data for Sensex. Swapnil has given the link for the Nifty data with dividends included. So I have made a comparison of FIBCF vs. Sensex (bare) and FIBCF vs. Nifty (div. incl.) between 1st July 1997 t0 2nd Dec. 2013.

When we included dividends the outperformance is not as dramatic, especially in the last 10 years!!

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50 thoughts on “Mutual Fund Rolling Returns Analysis: Franklin India Blue Chip Fund”

1. Thanks for the DATA crunching dear Pattu. When people are questioning the very basic thing – Should We invest in Eq. at all, such analysis do provide a comfort for such people. I do not know how many among us ‘ll use common sense to stay put in Eq. investing.

1. pattu says:

Agree with you Ashal. If someone asks should we invest in equity at all, we cannot do much to convince them. I think we should try to have enough resources for those who are new to equity investing to ensure they stay invested.

2. Thanks for the DATA crunching dear Pattu. When people are questioning the very basic thing – Should We invest in Eq. at all, such analysis do provide a comfort for such people. I do not know how many among us ‘ll use common sense to stay put in Eq. investing.

1. pattu says:

Agree with you Ashal. If someone asks should we invest in equity at all, we cannot do much to convince them. I think we should try to have enough resources for those who are new to equity investing to ensure they stay invested.

3. Ramesh says:

A minor point – Comparison of the fund with its benchmark is of academic importance only. In my view, a better comparison will be the fund and the lowest cost available index fund for that particular benchmark for it to be of practical use. That will take care of the various costs involved too rather than only the performance.

In any case, the most highlighted funds tend to perform less as is the evidence here (and in case of HDFC Top 200 too).

1. pattu says:

Dear Ramesh, I am not sure I agree. When I look at the rolling returns of an index fund with its index, there is very little difference in the results. So using the benchmark should not make a big difference (see file attached at end of the post).

No fund can stay on top or beat the index by the same margin forever. I would like to think discipline is more important that fund choice.

4. Ramesh says:

A minor point – Comparison of the fund with its benchmark is of academic importance only. In my view, a better comparison will be the fund and the lowest cost available index fund for that particular benchmark for it to be of practical use. That will take care of the various costs involved too rather than only the performance.

In any case, the most highlighted funds tend to perform less as is the evidence here (and in case of HDFC Top 200 too).

1. pattu says:

Dear Ramesh, I am not sure I agree. When I look at the rolling returns of an index fund with its index, there is very little difference in the results. So using the benchmark should not make a big difference (see file attached at end of the post).

No fund can stay on top or beat the index by the same margin forever. I would like to think discipline is more important that fund choice.

5. Ramesh says:

I will try checking it later since the current format of .xlsb is not readable right now.

Intuitively, I feel that a rolling return graph of a sensex and its etf will be nearly similar but the actual numbers would be quite different. The more the period, the more difference will be there.

Eg, a 1 year sip in FIBCF regular and direct funds gives different values. Expenses matter. It is all about expenses. If a fund generates enough returns (either in absolute terms or in risk adjusted terms) on the additional costs it is asking, it is sensible to invest in it, otherwise indexing is fine.

Your data points towards comparison between the active fund and the mythical zero-cost benchmark. Many people will get confused about the results that way.

1. pattu says:

If an instrument with higher cost (FIBCF) beats the instrument with lower cost (Sensex/ETF/index fund) comfortably for large periods of time in the past, the high cost is justified.

It is news only when the higher cost fund did not beat the lower cost fund. So I think a comparison with a zero cost benchmark is quite fine since it is actually tipped against the fund.

If I find the active fund to be similar to the benchmark, I should worry about including costs in the comparison to even the scales.

If want to compare direct and regular options, I don’t need rolling returns. All I need to do is to track expense ratios. That is an entirely different comparison since the portfolios are the same.

6. Ramesh says:

I will try checking it later since the current format of .xlsb is not readable right now.

Intuitively, I feel that a rolling return graph of a sensex and its etf will be nearly similar but the actual numbers would be quite different. The more the period, the more difference will be there.

Eg, a 1 year sip in FIBCF regular and direct funds gives different values. Expenses matter. It is all about expenses. If a fund generates enough returns (either in absolute terms or in risk adjusted terms) on the additional costs it is asking, it is sensible to invest in it, otherwise indexing is fine.

Your data points towards comparison between the active fund and the mythical zero-cost benchmark. Many people will get confused about the results that way.

1. pattu says:

If an instrument with higher cost (FIBCF) beats the instrument with lower cost (Sensex/ETF/index fund) comfortably for large periods of time in the past, the high cost is justified.

It is news only when the higher cost fund did not beat the lower cost fund. So I think a comparison with a zero cost benchmark is quite fine since it is actually tipped against the fund.

If I find the active fund to be similar to the benchmark, I should worry about including costs in the comparison to even the scales.

If want to compare direct and regular options, I don’t need rolling returns. All I need to do is to track expense ratios. That is an entirely different comparison since the portfolios are the same.

7. I am not sure that is a fair comparison as it simply depends on the stock chosen. Direct equity investing and MF investing cannot be compared.

8. I am not sure that is a fair comparison as it simply depends on the stock chosen. Direct equity investing and MF investing cannot be compared.

9. bharat shah says:

i think , it would not be improper , to mention the concluding part of a post of investopedia.com for equity share investment (referred by subramoney.com) :
‘it becomes evident that stocks truly are the best way to maximize the upside potential of one’s portfolio. The key is to hold an appropriate amount and to diversify your holdings through mutual funds, index funds and ETFs.’
it is in relation to USA markets , seems true for India. it is particularly to note that he asked to diversify the stocks through mutual funds.index funds and ETFs.
for indian markets , i think, the under performance of funds like FIBC in certain period is due to, though they are holding mostly large caps , but some of their holding is in mid and small caps , which do not performed as large caps since jan, 2008 (the sensex gained previous level, but mid cap is still way behind). we may call it style impurity.

10. bharat shah says:

i think , it would not be improper , to mention the concluding part of a post of investopedia.com for equity share investment (referred by subramoney.com) :
‘it becomes evident that stocks truly are the best way to maximize the upside potential of one’s portfolio. The key is to hold an appropriate amount and to diversify your holdings through mutual funds, index funds and ETFs.’
it is in relation to USA markets , seems true for India. it is particularly to note that he asked to diversify the stocks through mutual funds.index funds and ETFs.
for indian markets , i think, the under performance of funds like FIBC in certain period is due to, though they are holding mostly large caps , but some of their holding is in mid and small caps , which do not performed as large caps since jan, 2008 (the sensex gained previous level, but mid cap is still way behind). we may call it style impurity.

11. pattu says:

Many thanks for pointing this out, Swapnil. The outperformance is not so dramatic once, dividends are included.

12. pattu says:

Many thanks for pointing this out, Swapnil. The outperformance is not so dramatic once, dividends are included.

13. pattu says:

I agree that FIBCF alone cannot be the equity folio. But I think for the large cap component, it is a good pick, any day.

14. pattu says:

I agree that FIBCF alone cannot be the equity folio. But I think for the large cap component, it is a good pick, any day.

15. bharat shah says:

but , then, one has to take the expenses related to buying, holding and selling index stocks . of course it would not be more as dividends.
sensex total return index(sense tri) is the benchmark index for QLTE mf. just for information. no idea from where its absolute value is available on daily basis.

1. pattu says:

Yes. If a fund outperforms an index with dividends incl but expense excl. then it will definitely beat the index when expenses are included. I now have Sensex total returns, thanks to a couple of readers. I will post the comparison with FIBCF and QLTE soon. Thanks.

16. bharat shah says:

but , then, one has to take the expenses related to buying, holding and selling index stocks . of course it would not be more as dividends.
sensex total return index(sense tri) is the benchmark index for QLTE mf. just for information. no idea from where its absolute value is available on daily basis.

1. pattu says:

Yes. If a fund outperforms an index with dividends incl but expense excl. then it will definitely beat the index when expenses are included. I now have Sensex total returns, thanks to a couple of readers. I will post the comparison with FIBCF and QLTE soon. Thanks.

17. Swapnil Dalvi says:

Raghu Ramamurthy i think you suffer from "Survivorship bias"

18. Swapnil Dalvi says:

Raghu Ramamurthy i think you suffer from "Survivorship bias"

19. Swapnil, let us not be hasty in discarding any views. There are many who believe that picking select stocks from a funds folio is better than investing in the fund itself. So an analysis will be of use to them. Of course they will then have to bear with the assumptions involved too.

20. Swapnil, let us not be hasty in discarding any views. There are many who believe that picking select stocks from a funds folio is better than investing in the fund itself. So an analysis will be of use to them. Of course they will then have to bear with the assumptions involved too.

21. Harini Ethimex says:

great post. It helped me alot. Thanks for posting it

1. pattu says:

Thank you.

22. Harini Ethimex says:

great post. It helped me alot. Thanks for posting it

1. pattu says:

Thank you.

23. Veeresh says:

You pointed out correctly Pattu. Data makes lot of difference for making decision. Most of your blogs are data oriented so it helps me to understand better.

1. pattu says:

Many thanks Veeresh. Appreciate your support. There is no escape from data analysis.

24. Veeresh says:

You pointed out correctly Pattu. Data makes lot of difference for making decision. Most of your blogs are data oriented so it helps me to understand better.

1. pattu says:

Many thanks Veeresh. Appreciate your support. There is no escape from data analysis.

25. Does anyone has data for the number of the investors that stayed put in FIBCF since last 20 years as % of the total investors of FIBCF ? I would like this info to be available for any fund so as to understand how many disciplined investors are there.
Almost all personal finance resources books, bloggers, tv programmes, experts etc all preach ” Invest in the equity for the long term”. I just wanted to understand the numbers.

1. pattu says:

For FIBCF I read somewhere that is 9000 investors since inception and half of those accounts are inactive!

26. Does anyone has data for the number of the investors that stayed put in FIBCF since last 20 years as % of the total investors of FIBCF ? I would like this info to be available for any fund so as to understand how many disciplined investors are there.
Almost all personal finance resources books, bloggers, tv programmes, experts etc all preach ” Invest in the equity for the long term”. I just wanted to understand the numbers.

1. pattu says:

For FIBCF I read somewhere that is 9000 investors since inception and half of those accounts are inactive!

27. JD says:

Hi Dear, Excellent write up from you and i recently started reading your articles and using calc too.
I have following investment and i thought i have different kind ( category ) of funds in my portfolio. I am an steady invester since last two year and probabely continue min 10 Yr.
My portfolio :
QTLEF SIP WEEKLY 2500
FIBCF SIP MONTHLY 5000
HDFC T200 MONTHLY 5000
IDFC PREMIER EQUITY SIP MONTHLY 3000

with your recent HDFC AND FIBCF analysis , what would you advice with above portfolio?
Thanks..
JD

1. pattu says:

If I were you I will continue with your investments. I hold QLTE, FIBCF and Top 200 and am continuing with the. Suggest you use my integrated financial planner to get a holistic picture.

28. JD says:

Hi Dear, Excellent write up from you and i recently started reading your articles and using calc too.
I have following investment and i thought i have different kind ( category ) of funds in my portfolio. I am an steady invester since last two year and probabely continue min 10 Yr.
My portfolio :
QTLEF SIP WEEKLY 2500
FIBCF SIP MONTHLY 5000
HDFC T200 MONTHLY 5000
IDFC PREMIER EQUITY SIP MONTHLY 3000

with your recent HDFC AND FIBCF analysis , what would you advice with above portfolio?
Thanks..
JD

1. pattu says:

If I were you I will continue with your investments. I hold QLTE, FIBCF and Top 200 and am continuing with the. Suggest you use my integrated financial planner to get a holistic picture.