Building an equity mutual fund portfolio is one of the most important aspects of creating a financial plan. After all, it is equity which, in the long term, is most likely to beat inflation and create long-term wealth for the investor. However, creating an equity portfolio for a DIY investor is a very difficult task, given the many categories of equity MFs and the number of funds within each.
About the author: Jay Sheth, 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.
The Missing Piece in DIY Research
Most financial portals are great at showing you how one fund performed. They let you compare Fund A vs. Fund B. But investors don’t buy just one fund; they buy a combination.
The most common point of confusion arises here: You shortlist 4–5 great funds, only for someone to tell you
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- This portfolio will create over diversification
- This portfolio may create a lot of overlaps
- A simple Nifty 500 or Nifty 100 will beat returns of all these 3 to 5 combined
There was no easy way for a DIY investor to verify if their specific mix of funds actually adds value over a simple Nifty 500 benchmark.
To solve this problem, we have developed a proprietary model that allows you to move beyond individual fund research and analyse Portfolio Synergy.
Our new tool allows you to construct a hypothetical portfolio of up to five mutual funds and back-test them against the Nifty 100 or Nifty 500.
What makes this tool different?
We haven’t just hand-picked the “winners.” To provide a realistic, unbiased simulation, our database includes:
- Top-tier performers across Large, Mid, Small, and Flexicap categories.
- Diversifiers including Gold, Multi-Asset, and Balanced Advantage funds.
- The “Underperformers”: To keep the analysis fair, we’ve included funds that have historically trailed the benchmark. This allows you to see how one “weak link” impacts an entire portfolio’s success.
Data-Driven Validation
Our tool moves past “gut feelings” by providing hard data on the parameters that actually matter to your wealth:
- SIP & Lumpsum XIRR: See the actual internal rate of return for your specific combination.
- Return Consistency: XIRR would provide you with returns as of a particular date. We move beyond this, and for the selected period, also give you which fund was more consistent.
- Rolling 3-Year & 5-Year Returns: Understand the consistency of your portfolio across different market cycles, not just a lucky point-to-point window.
- Drawdown Performance: Provided for each year
Does Complexity Add Value?
Historical performance is never a guarantee of future results. However, this tool empowers you to move from a hunch to a data-driven insight and answer the ultimate question: Can my 5-fund portfolio actually beat the Nifty 500 (and how consistently), or am I just collecting funds for the sake of it?
You can access the model at www.shwealth.in/pfbuilder, for best performance view this in a desktop rather than a mobile.
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 a 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 making 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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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 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), 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 promoting unbiased, commission-free, AUM-independent investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,500 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 the market condition!! 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.
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