Want lower risk & higher return mutual funds? Spot them easily this way!

Want lower risk & higher return mutual funds Spot them easily this way

Published: September 18, 2019 at 10:16 am

Last Updated on

Do you want mutual funds that have got a higher return than a benchmark at lower risk? Then here is an easy way to spot them! In order to do this, I must first define “return”. This is easy, we will just use the annualized return aka compounded annualized growth rate (CAGR) aka IRR aka XIRRThen we define “risk”.

Unlike return, risk can be defined in many ways. The simplest and most common measure of risk is the standard deviation. We look at a mutual fund’s daily returns and determine how much they deviate from the average daily return over say a year or three years. This tells us how volatile the fund is.

So we shall define a fund with lower risk as one with a lower standard deviation than a benchmark. That is lower volatility than a benchmark. We shall define a fund with higher return as one with a higher return than a benchmark (obviously!)

The question now is, how do we screen for funds with lower risk and higher returns.  First, we need to decide on the duration. How about funds with lower risk and higher returns over the last 1,2,3,4 and 5 years? That is a reasonably robust filter. The goal with any screening is to reduce the number of funds, but it should not reduce it down to one or two funds as such a list will be too variable.  The above conditions get the job done well.

Shortlisting mutual funds with lower risk and higher return

Let us consider the data over the last five years. We have 251 equity funds in the basket, to begin with. We first define the Excess return of the fund = Five-year return of the fund minus the five-year return of the index. So, if the excess return is positive it means the fund has beat the index and vice versa.

Next, we define the Excess risk of the fund = Five-year standard deviation of the fund minus five-year standard deviation of the index. So if the excess risk of the fund is negative it means the fund has taken lower risk than the index and vice versa.

Clearly, we are looking for funds with positive excess return and negative excess risk. Such funds would have beat the benchmark by taking lower risk. Suppose we plot the excess return (vertical axis) vs the excess risk of all the funds, we would get this.

Shortlisting mutual funds with lower risk and higher returnWe now have four sections. Among these, clearly the one marked in red – lower return and higher risk is a  No-no. The rest are okay, but the ones within the blue rectangle – higher return and lower risk are special. All the funds here are exactly what we are looking for.

This is however only over five years. We can make this a lot tighter by demanding that funds beat the benchmark at lower risk over 1,2,3,4 and 5 years. For Sep 2019, this results in 20 funds across these categories.

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CategoryNo of funds
Aggressive Hybrid Fund1
Focussed Fund1
Large & Mid Cap Fund4
Mid Cap Fund4
Multi-Cap Fund2
Sectoral/ Thematic5
Small Cap Fund1

This lower risk, higher reward screening is automatically applied in the freefincal equity mutual fund screener. This is a video guide for using the screener.

You can get the screener via this link:

Click here to pay Rs. 111 and download (instantly) the Sep 2019 Freefincal Equity Mutual Fund Screener Living outside India? You can pay via this Paypal link (3 USD) and send a mail to freefincal at Gmail.

The full feature list and screening guide is here: Sep 2019 Equity Mutual Fund Performance Screener

You can also access the full archive of monthly fund screeners  (use this link to see details of the latest screener) and you use this link to buy the lastest fund or stock screener

Plus: Nifty Valuation Tool: Find out if the stock market is expensive or cheap in multiple ways

By clicking you agree to the terms in the important information section below. Do not forget to download the sheet after you pay!!

Important Information

  1. This screener (Sep 2019) costs Rs. 111  (Rs. 100 + Rs.11 transaction fee)  I believe the cost is both affordable and justified for the information provided.
  2. The cost is only for the Sep 2019 screener and only for the data in the sheet.
  3. You will get a zipped file. It has one excel file with macros. If you wish to use the automated screener, you will have to enable macros. If macros are disabled or if you wish to use it on Google sheets or elsewhere, the plain data will still be available.
  4. While I will do my best to publish updated screener sheets each month, I cannot guarantee the same.
  5. The file does not contain any buy or sell recommendations and only has the above-mentioned data.
  6. Enough care and effort have been put in to weed out errors, however, I cannot guarantee that the sheet is free of error.
  7. The buyer will have to do their own research with regard to using the information in the spreadsheet. No recommendations or assistance is included in the sheet and will not be provided separately
  8. I will not provide any further help or assistance in using the sheet
  9. The sheet purchased is for personal use only should not be shared with others privately or publically
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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman 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.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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  1. Hi, when I click on the link to buy, it gives error that This page was lost
    The URL is wrong.
    The page you’re looking for never existed, doesn’t exist or is having an existential crisis.
    If you’re looking for an offer: it might have been deleted, archived or might be under moderation.

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