Last Updated on August 30, 2021
A simple way to screen mutual funds using downside capture and upside capture ratios is discussed. The capture ratio data obtained for equity-cap funds is used as an example.
With such a batach analyzer, it is a simple task to get the data for other fund categories. However, it is also boring – one needs to match VR fund name with AMFI name and code. Will do this when I feel strongly enough about it.
Mutual Fund Screening Basics
- Results will change from month to month as the data is on a trailing basis
- Wider the screening criterion, lesser the change and vice versa.
- The idea of a screener is to shortlist a handfull of funds from a big list. Not to select one fund or the best fund.
- After narrowing it down to a few funds, the investor needs to evaluate the reputation of the fund house and read the investment strategy of each fund to choose one.
- Although there are nine years of data available, it maybe prudent to just focus on ‘good performance’ in the last 5 years or so.
Presented below are a few examples and suggestions. Use them as a guideline, nothing more.
The datasheet contains,
- downside capture ratio -lower the better
- upside capture ratio -higher the better
- Capture ratio (upside/downside) – higher the better (but there could be exceptions , see below)
- SIP returns 1,2,3,4,5,6,7,8,9 years
- Lump sum returns 1,2,3,4,5,6,7,8,9 years
Here are a few sample screens. First, I have chosen an extremly narrow screen – ALL SIP returns should be above average.
These are the results.
That is a good number of funds. Now let us observe the coresponding downside protection data.
Notice that fund with above consistetnly average SIP returns have pretty good (low) downside capture ratios. That is, they capture very little of their benchmark returns.
Question now is, ‘why should I use this capture ratio screener? Why can’t I use the Mutual Fund Screener with SIP Returns or the Mutual Fund Screener- Google Sheets Edition?’
I strongly believe that consistent downside protection is responsible for superior returns. So using returns screeners should be enough.
However, a returns screener focuses on returns and not on the journery.
Here are three panels of sample screens.
Top panel: If we demand downside protection to be below average then the list is empty!
Middle panel: Relax above restriction for 1Y, then we get just one fund – Sundaram Select Mid-cap. This have given some good returns and has great downside protection.
However, take a look at its upside protection (Bottom panel). It is pretty poor. This results in a poor capture ratio as well (upside/downside). This suggests that the fund may not capture much of the benchmarks gains. This could be stressful for the investor.
An alternative strategy would be to focus on the capture ratio.
A capture ratio above 1 is a considered good. This typically implies good downside capture and good upside capture. Such funds maybe less stressfull to invest in.
Here is a screen with above average capture ratios and above average returns for a few years (4Y and above).
You can also consult a similar screen with upside capture alone.
The key here is to understand what these captures represent, define an investment strategy and implement it.
To conclude,
Good returns imply good downside protection but do not guarantee low stress.
Good capture ratios + reasonable returns + reasonable downside protection may be a way to get a bit of everything.
Please remember, if your screen has only 2/3 funds, you are expecting too much.
Do share your thoughts on how you would go about screening funds.
Resources
More about the downside capture and also the upside capture can be found in the following posts:
Simplify Mutual Fund Analysis with Upside/Downside Capture Ratios
Understanding Upside and Downside Capture ratios
How Mutual Fund Upside and Downside Capture Ratios are calculated.
A visual tool: Mutual Fund Downside Protection Consistency Analysis.
Individual funds can be analysed with Mutual Fund Downside Protection Calculator.
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)