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How Mutual Fund ratings can be misleading

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I hold   ICICI Prudential Top 100 Fund in my portfolio and according to Valuersearch its a 3 star rated fund in muti-cap category.  Also  according to valueresearch, the fund is  ranked low compared to other mutual funds in multi-cap category. The 3 year returns for the fund is 16.94% while average returns for the category is 19.79% Similarly  the fund returns are below the category average for 5 year and 10 Year period. My first reaction was to sell it off and buy a good large cap fund instead.  On doing some more analysis I found that    ICICI Prudential Top 100  is in fact a large cap fund and valueresearch for some reason labels it as multi-cap. As a consequence the returns for this fund appear low compared to multi-cap funds and gets low rating which is not correct.  The fund description in ICICI mutual fund website clearly mention that this a large cap fund. https://www.icicipruamc.com/icici-prudential-mutual-fund/funds/equity-funds/ICICI-Prudential-Top-100-Fund A
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What rolling returns tell us about a Mutual Fund performance

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Most of the Mutual Fund rating websites list the past return as on today. It helps to gauge how fund have performed in past as of today, but doesn't  tell how fund has performed if the returns were calculated in past date. For example 3-year return for a fund may be 20% today, but what about 3-year returns of the same fund in past years. This is where concept of rolling returns come into play and is more effective tool, to determine the consistency of a fund in delivering good returns year after year. I wish mutual fund website could incorporate this feature and also rate the funds accordingly. Lets try an example using HDFC TOP 200 fund which has history of more than 20 years and it would be interesting to know, how the fund has performed in past based on rolling returns. I have calculated rolling returns of the fund , for 3-year, 5-year, 7-year, 10-year and 15-year period based on NAV on 1st of march. Over a 3 year period returns are unpredictable and therefore its go
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Investing and Cricket

Investment is like cricket game and there are similarities which can be explained. 20–20 cricket is exciting and you see many six and fours every now and then. Many of us also wish to see our money grow like runs flow in a 20–20 game. An investor who wants double his money in one year is like a 20–20 batsman who wants to score runs at high strike rate. Batsman has to take risk on every ball to score quickly but more often than not they fail to score consistently in every game. Similar thing happens to investors who risk their money to chase short term returns. Trying to hit six and four on every ball is like investing in risky assets hoping to get 50% returns every month. Intraday trading, futures and options, flipping real estate are equivalent to 20–20 cricket game, exciting and full of action but difficult to perform consistently. New heroes emerge and fall and records get created and broken over a short period time. Test match which is longer form of the game, appear dull
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Top 5 equity mutual funds in each category with consistent returns

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In my earlier post I laid down some rules to evaluate Large Cap funds http://moneybhasa.blogspot.in/2017/02/top-5-large-cap-mutual-funds-with.html In this post I will evaluate all equity mutual funds in different categories in a single post Large cap  Muti cap Mid/small cap Tax planning ELSS funds  The criteria remains same and reproducing it below. The fund should have at least 10 years of history. The data from value research is used which lists returns over 1-year, 3-year, 5-year and 10-year periods. The  returns are as on date 24-Feb-2017. The weighed average return is calculated by assigning following weights based on duration of returns. Annual compounded returns are taken into consideration. For 10 year returns weight is  40 out of 100 For 5 year returns weight    is  30 out of  100 For 3 year returns weight    is  20 out of 100 For 1 year returns weight    is  10 out of 100 Hence formula for weighed average returns Weighed Average returns =  (40*
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Top 5 Large cap Mutual Funds with consistent returns

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The idea of this  post is to select and rank large cap funds based on consistent return over long period of time. Selecting funds pose a real challenge as the number of funds in each category keeps on increasing. Also over different period of time there is huge variation in  returns for Mutual Funds. For example a fund with great 1 year or 3 year returns may not perform good over a 5 year or 10 year period . Therefore I laid down some criteria  to pick the fund taking into consideration returns for all possible periods from 1 year to 10 year, with higher weight for long term returns. This way we can filter signal from the noise and also overcome our inherent biases. The criteria and methodology is listed below. The fund should have at least 10 years of history. The data from value research is used which lists returns over 1-year, 3-year, 5-year and 10-year periods. The  returns are as on date 24-Feb-2017. The weighed average return is calculated by assigning following weight
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Interesting Readings

Morningstar's CEO shares some fund picking advice Days of 8-9% return from liquid funds are over' What scares me in a mutual fund today Do’s and Don’ts of Debt Mutual Fund Investing When mutual funds say no to your money
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Mutual Funds v/s Stocks by Mr Debashis Basu

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