In a previous article, I discussed building a portfolio and backtesting against the Nifty 100 or Nifty 500. Investors don’t own just one fund—they own a portfolio. The real question isn’t whether Fund A beat Fund B, but whether your portfolio is actually delivering better outcomes than a simple benchmark like the Nifty 500.
The portfolio back-testing tool was built with that objective in mind. It enabled investors to construct a portfolio of up to five mutual funds and compare its historical performance against the Nifty 100 or the Nifty 500.
The response to the tool highlighted another common requirement. Some Clients and investors are often not deciding between a fund and an index—they are deciding between two portfolios.
About the author: Jay Sheth is a SEBI-registered investment adviser and a member of Fee-only India, a group of fixed-fee-only advisors. He can be contacted via his website shwealth.in.
Should you replace your existing portfolio with a simpler one? Is your advisor’s recommended portfolio likely to be better than your current one? Does adding more funds genuinely improve outcomes, or does it simply increase complexity?
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Most popular mutual fund websites allow investors to compare individual funds or analyse an existing portfolio. However, they do not allow investors to build two hypothetical portfolios and compare their historical performance side by side. Yet this is often the decision that investors actually need to make.
The latest update to the portfolio back-testing tool addresses this gap. You can now create two independent portfolios, each containing up to five mutual funds with your chosen allocation, and compare them over the same historical period. There are 35 Mutual Funds to choose from, including large-cap, mid-cap, small-cap, Flexicap, multicap, Index Funds, Gold, S&P 500, Hybrid funds, and Value and Contra funds.
The comparison is not limited to point-to-point returns. You can evaluate both portfolios using SIP and lump sum XIRRs, rolling returns, and other performance metrics that provide a more meaningful assessment across different market conditions. Also, for the period chosen for comparison, do not just rely on the XIRR for that period, what is more relevant is, for the chosen period which Portfolio provided the better XIRR over the entire period.
As with the earlier version of the tool, the objective is not to predict the future. Back-testing cannot tell us which portfolio will outperform in the years ahead. What it can do is help eliminate weak portfolio ideas, test investment hypotheses, and make decisions based on evidence rather than intuition.
If you are considering changing your mutual fund portfolio, there is one question worth asking before you act:
Have I tested whether the new portfolio would actually have been better than the one I already own?
Now, you can. The model can be accessed on www.shwealth.in/pfbuilder
Disclaimer: Nothing in this article or the model on the website is my solicitation, recommendation, endorsement or offer. Past performance of an index, individual or combination of mutual fund schemes is no guarantee for future performance as to the returns and risks. We do not take any responsibility for investment decisions based on this model, please consult your advisor before taking any decisions on your portfolio construction. Registration granted by SEBI, BASL membership, and NISM certification do not guarantee the intermediary’s performance or provide any assurance of returns to investors. Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.
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