Investing in Consistently Performing Mutual Funds for Continuous Returns

It is a common misconception that certain mutual funds will consistently outperform and provide continuous returns over a period of time. Each fund will experience periods of underperformance, which is a normal part of the investment cycle. Therefore, it is crucial to give sufficient time to a fund before discarding it. It’s important to note that a fund rated 'A' for a year does not guarantee its continued stellar performance.

Investment for the Long Term

If your investment horizon is over 7 years, it is advisable to consider equity mutual funds. Historically, equity has outperformed other asset classes over the long term. When looking for ‘best funds’ for Systematic Investment Plan (SIP), it is not enough to focus on top-performing funds in a single year. The best funds are those that offer consistent returns over a period of time.

Categories of Best Equity Mutual Funds

We have selected the best funds from the following five categories:

Large Cap Large Mid Cap Multi-Cap Flexi Cap ELSS (Equity Linked Savings Scheme)

These categories are suitable for a majority of investors and can form the core part of their investment portfolios. We have shortlisted schemes with at least 10 years of performance history.

Methodology for Selection of Best Funds

To select the best funds, we used the quartile system. Q1 includes the top 25% of funds, Q2 the next 25%, Q3 the next 25%, and Q4 comprises the bottom 25%.

Criteria for Choosing Consistently Top-Performing Funds

We initially sought funds that were consistently in Q1 over the last 10 years. Unfortunately, none were found to meet this criterion. Next, we looked for funds that remained in Q1 for at least 7 years. Three funds met this criterion: Axis Long Term Equity Fund Mirae Asset Emerging Blue-chip Fund Invesco India Multi Cap Fund

It is important to note that while the Mirae Asset Emerging Blue-chip Fund has consistently been in Q1 for 8 out of the last 10 years, the fund’s performance has been comparatively weak in the last 5 years. It spent 3 years in Q4 and two years in Q1. However, during the period from 2011 to 2015, the fund was consistently in Q1 for all 5 years. This fluctuation highlights the importance of thorough research before making an investment.

Further Criteria for Consistently Good Funds

We then considered funds that had at least 5 years in Q1. Eight funds met this criterion.

Extended Criteria – High Consistency In Performance

We then looked for schemes that had spent at least 70% of their time in Quartile 1 or Quartile 2. As a result, we found 11 funds to consider.

Note: There is no one perfect fund for every individual. This list is not exhaustive, and it is crucial to conduct your own research through the ETMoney app or compare these schemes according to your needs.

Conclusion

To conclude, a multi-criteria approach is necessary to find the best mutual funds for long-term, consistent returns. The selection should not solely be based on past performance but also on the consistency and reliability of the fund over a broader time period. This article provides a starting point for your research and investment decisions.

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