Mutual Fund Asset Class Returns 30Sep2024
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
(the blog continues below)
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Table 1: Asset return matrix - annual returns (arranged from top to bottom returns in 2023) >
Table 1 above reveals:
> asset class returns are cyclical in nature
>
gold exchange traded funds (ETFs) did well both in calendar years 2023
and 2022; the asset class did well so far in 2024 also -- this is mainly due to the fact that international gold prices have been reaching all time highs in recent months
> multi asset allocation funds (a combination of equity, debt and gold categories) too have provided decent returns in 2024 so far -- continuing their good performance in 2023
> gold has been providing decent returns since 2022
>
while large-, flexi-, small- and mid-cap equity funds have continued their stellar
record in the first three quarter of 2024, equity international funds have recorded subdued returns
> in the debt category, gilt and dynamic bond funds have provided decent returns in the first three quarters of 2024
Table
3: Asset return matrix - trailing returns as on 30Sep2024 (10-year returns top to bottom) with category AUM or assets under management
>
Please click on the image to view better >
What table 3 above reveals is:
> Small-cap equity funds have provided best returns on a 10-year trailing returns basis, though they have provided negative returns as a category in 2022, 2019 and 2018
> however, investors in
small-cap equity funds have to tolerate higher volatility and it’s in the
nature of equities to suffer from volatility of returns
> of the selected funds, the top three funds year-to-date are all from equity category, namely, mid-, small- and flexi-cap funds
> gold ETFs (exchange traded funds) and equity international funds too have done well YTD
> returns of equity funds on a 1-year, 3-year and 5-year basis have been quite impressive as Indian stocks have become darling of foreign (at least till 30Sep2024) as well as domestic investors
> table 3 also provides assets under management (AUM) of respective category as of 30Sep2024, so that readers can have a sense of the popularity of the mutual fund categories among investors
The contents of the above table 3 are presented below, with the same data, but in alphabetical order >
Please click on the image to view better >
Mutual Fund Categories with Similar Returns
Table 5: Trailing returns of fund categories with similar returns: data as of 30Sep2024:
Table 6: Annual returns of fund categories with similar returns:
As shown in tables 5 and 6 above, the returns of equity large-cap and aggressive hybrid fund categories are similar.
Returns
of gilt, dynamic bond, Banking & PSU, corporate bond and floater
categories of debt are similar; though gilt fund returns are slightly
higher (this is borne out in Section A and B above).
The returns of liquid (debt mutual fund) and arbitrage (hybrid MF) too are similar.
Section B: Risk measures of select MF categories:
Table 8: Standard deviation of select MF categories:
Tables 7 and 8 provide details of risk measures of the mutual fund categories and their similarity.
Though
standard deviation of aggressive hybrid category funds is lower for 1-,
3-, 5- and 10-years compared to large-cap funds, the Sharpe ratio these
two categories is similar as shown in Table 7 above.
One can also look at the Sharpe ratio of other mutual fund categories analysed in Tables 7 and 8.
To Sum Up
Investors tend to hold several mutual funds in their portfolios. There is no necessity for investors to hold several funds. As described above, several fund categories tend to provide similar returns.
Of course, in a single mutual fund category, the performance of one fund may be completely different from another fund.
There is a wide disparity in returns of schemes of fund houses in the same category quite often -- meaning some schemes within a category provide superior returns.
Suppose if you want to invest in equity mutual funds, it is better to hold not more than three funds with different fund houses.
In case of debt funds too, investors can stick to two or three categories of debt funds, instead of investing in a zoo of funds.
Even the risk characteristics (like standard deviation and Sharpe ratio) of some fund categories are similar. Investors are better off holding asset classes and funds that are likely to provide dissimilar returns, with diverse sources of risks, and according to their personal situation and risk appetite.
This blog is an attempt to impress upon novice investors to assess returns and risk characteristics and make informed decisions before plunging into the world of mutual funds.
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Data source:
Value Research annual returns
Value Research trailing returns
Morningstar India risk measures
VR raw data as on 30Sep2024
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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