Mutual Fund Portfolio Guide for Financial success

  1. Importance of Personal Finance
    1. Personal finance: Why Is It Important?
    2. what is personal finance explained with example
    3. Compound Interest and Simple Interest Understanding Personal Finance Maths
    4. compounding effect Understanding Compounded Returns with Formulas and Examples
    5. value of money Exploring the Concept of Present and Future Value in Personal Finance
    6. Future Value of money Formula How to Calculate with Example
    7. Retirement Tips for How to Save, Plan, and Invest
    8. Inflation how it Impacts Your Retirement Income with formula and examples
    9. Diversifying Portfolio for a Secure Retirement example of Investing in Multiple Assets
    10. Retirement Corpus example Strategies and Assumptions for a Secure Future
    11. mutual funds introduction
    12. Asset Management Companies:Understanding Structure and Roles in Mutual Funds
    13. NAV Net Asset Value Understanding the Core Concept of Mutual Funds with example
    14. Net Asset Value in Mutual Funds Fair Division of Profits and Investor Returns
    15. Mutual Fund Fact Sheet A Comprehensive Guide Unlocking the Secrets of MF Factsheets
    16. types of mutual funds schemes as per SEBI October 2017 Circular
    17. MultiCap Funds
    18. Focused Funds
    19. Dividend yield funds
    20. ELSS Funds
    21. debt fund A Comprehensive Guide to Understanding What are Debt Funds in india
    22. liquid mutual fund
    23. Overnight Fund all you need to know about Overnight debt funds
    24. liquidity risk in mutual funds
    25. Banking and PSU Debt Fund
    26. Credit Risk Funds
    27. GILT Funds
    28. Bond Financial Meaning With Examples and 5 types of bonds explained
    29. YTM Yield to Maturity definition and how to calculate
    30. Accrued Interest Definition and Example how to calculate
    31. Active vs Passive Investing for Better Return
    32. What Are Arbitrage Funds? · ‎Example of Arbitrage Fund
    33. mutual fund terms top 10 jargons to know before investing
    34. CAGR how to calcullate Compound Annual Growth Rate with formula
    35. Rolling Return Analyzing Mutual Fund Performance Over Time
    36. Expense Ratio What Is this fee And Why Does It Matter with examples
    37. Direct vs Regular Mutual Fund
    38. Benchmark in Mutual What It Is, Types, and How to Use Them
    39. Mutual Fund Risk Exploring Beta, Alpha, and Standard Deviation
    40. sortino ratio and Capture Ratios uses in Evaluating Mutual Fund Performance and Risk
    41. Mutual Fund Portfolio Guide for Financial success
    42. How to choose the best Mutual Fund for Your Portfolio by Evaluating Risk and Objectives
    43. Mutual Fund for beginners cheat sheet for Financial Success
    44. Smart Beta etf Exploring the Factors that Drive Return
    45. Asset Allocation and Diversification to Build a Balanced Portfolio
    46. Investment Vehicles Exploring the Evolution From Mutual Funds to ETFs
    47. GDP to Market Cap Ratio: Exploring the Link between Macroeconomics and Investments
    48. personal finance guide for Long-Term Success by Taking Control of Your Finances
    49. Personal finance Guide to Optimizing Your Investments and Achieving Your Financial Goals
Marketopedia / Importance of Personal Finance / Mutual Fund Portfolio Guide for Financial success

Take a moment to consider the topics we’ve covered in the last 23 chapters. Reflect on what has been discussed and go over it all in your head.

In a nutshell, here is what we have discussed –

o   It is clear that investing is an integral component of personal finance.

o   We have determined several resources which will assist us with progressing towards our retirement objectives or any other fiscal aims.

o   We can use mutual funds as our primary financial instrument to plan out our financial goals more effectively.

o   After establishing the above, we figured that it is important to focus and learn more about mutual funds

o   We started by understanding what a mutual fund is followed by the importance of the mutual fact sheet

o   We identified the most popular categories of mutual funds and discussed the same

o   In the process, we explored various types of funds across both equity and debt categories

o   Discussed the Index fund

o   Most recently, we discussed the various performance and risk attributes of mutual funds.

We have now arrived at a fascinating crossroads as we navigate our path to the last stage of this module, that is, how to construct mutual fund portfolios to assist us in realising diverse financial aims for our lives.

If you think about it, building a mutual fund portfolio has three parts to it –

  1.     Identify a financial goal and consider how much money you will need in order to meet it, as well as when. For example, if the goal is for your 10-year-old to attend postgraduate study in the US, you may need Rs.40L (in today’s terms). This can then be adjusted for inflation over the 15 years between now and then.
  2.     Identification of funds to help you achieve the financial goal
  3.     Periodic review and maintenance of the portfolio.

My view is that the first and third points are not too hard to manage. The difficult part is understanding the process of constructing a portfolio, which involves three components.

o   Analyze funds, pick the right ones and avoid investing in the bad ones

o   Figure the portfolio composition – just equity, just debt, a mix of equity and debt etc.

o   Once the portfolio is identified, figure how much to invest across each of these funds

In my opinion, an integral part of the process is a thorough fund analysis – it’s imperative to make sure that you have chosen the ideal fund house and funds that will help you to reach your financial objectives.

In this chapter, we will look at an approach to analyse an equity mutual fund. This is just a template; you can use it as a starting point for any equity fund. It is not necessarily correct or wrong; the technique below is based on my own experience. The more you explore mutual fund investing, the more you may develop or change your template.

Let’s begin.

– Hygiene check


I’ll select an equity mutual fund and devise a way to evaluate it. To reiterate, there isn’t a definite technique to assess a mutual fund. Therefore, investors should take their own approach based on what suits them better. For example, some might prefer to concentrate on the portfolio manager and the calibre of stocks that they have invested in while others may prefer to just look at past returns.

I prefer to keep things uncomplicated and stay focused on the issues that are most important to me, such as risk management and performance.

Alright, so let us get started on fund analysis.

In debating this topic, I’ve taken the Kotak Standard Multi-Cap Fund (Growth, Regular) as my example. Make certain to not interpret this as a suggestion of any kind.

It should be noted that, since direct funds are relatively new, historical data may be limited; therefore, we are taking a look at the usual funds.

The initial measure is to complete some necessary assessments, including highlights of the fund one should be aware of. This material can usually be found in the fact sheet. It is important to note ‘about the fund itself’ – please refer to the snapshot below.

From the note above, I develop an orientation for this fund –

o   This fund is multi-cap, allowing investment in different levels of categorization.

o   I would anticipate that this fund, being a multi-cap type, utilises a more diversified index to measure its performance against, so it is unlikely that the Nifty 50 TRI represents its benchmark.

o   I examine the fund’s inception date of 11th Sept 2009. This provides me with enough history to enable an assessment of its performance over the past ten years.

o   The fund manager has stayed the same and, if you’re part of the fund manager cult, then you can check out their background, credentials and track record. Personally, I’d rather not bother with that.

I dig further in the fact sheet and get other important information about the fund –

The investment objective of this fund gives valuable insights into its structure. It appears to have a blended approach to growth and value style investing, and it is not limited to any particular market capitalizations; rather, it can invest across the spectrum. The investment style grid further supports this conclusion.

Investigating the portfolio shows that the majority of funds are split between large and mid-cap stocks. Hence, it’s only fitting that its benchmark is the Nifty 200 Total Return Index.

Many MF investors take a deep dive into the portfolio details, questioning why the fund manager has allocated X amount in Stock A versus Y amount in Stock B – this apparently appears to be their interpretation of an intensive mutual fund analysis.

The Equity fund’s portfolio shouldn’t be subjected to nitpicking. After all, if you have the ability to determine which stocks are profitable and which aren’t, it simply makes more sense to invest in those equities directly.

You can stay on your couch while holding a tub of popcorn, and provide deep and worthwhile remarks on Virat Kohli’s batting technique when it comes to international cricket.

The fund’s AUM stands at Rs.29,500 Cr, giving it a large size. To understand how big this is in comparison to the AMC’s overall AUM, you will need to take a look at that.

The AUM listed on Kotak AMC’s website is updated regularly. It currently stands at 1.5L Crore, resulting in 18% of the total AUM being held by the standard equity fund.

If we look at the Equity section, it houses a AUM of 40,000 Crore, with the Kotak Standard Equity Fund carrying almost 72% of that amount. Clearly this fund is held in high regard and can be called one of its flagship products.

Why are we looking into this data? We need to understand how the money is managed within the AMC so that we can properly evaluate the situation. It’s important for them to be very careful with their most popular funds.

Do you ponder if funds with large assets under management (AUM) could be an issue? Many people express concerns that the fund manager may find it challenging to oversee the capital when opportunities start dwindling down.

If the fund flow is stable and the AUM increases steadily, then I believe it is suitable. Conversely, when there’s a sudden boost in AUM due to vigorous promotion, that may lead to a decline in performance.

When it comes to agility, smaller funds can be more advantageous.

Apart from the  AUM size, we look at the expense ratio of the fund, direct is at 0.73% and regular is at 1.69%. Not surprising at all.

Since you are reading this, I hope you won’t consider regular funds ever again in your life. 

Going forward, I’d like you to study a variety of metrics, they can be found in the factsheet as well as external sources such as Morningstar and Value Research.

The fund’s 3-year standard deviation is 20.58%, which implies that it could vary up or down a similar amount over that same timeframe. When viewed from a risk standpoint, this is favourable in comparison to the category’s 21.38% standard deviation.

Switching to the 5- and 10-year periods, the fund’s SD stands at 18.39% and 17.42%, while its competition’s is 19.12% and 18.4% respectively; this appears to be a favourable indication that the fund is well-equipped in controlling risk.

We should take a look at the Sharpe ratio, but this isn’t definitive as it is negative. This suggests that either the risk-free return is greater than the portfolio’s located return or expected returns are negative. Therefore, we can disregard the Sharpe Ratio.

To evaluate the fund’s performance relative to the category, look at its Alpha and beta figures over periods of 3, 5, and 10 years.

At this stage of the process, we collect some pertinent ‘good to know’ information. We then wrap up the fund’s hygiene check.

 – Rolling returns check

This phrase ‘past performance is not an indicator of the future performance’ is quite popular, and for good reason. There is no guaranteed way to predict what the future will bring us; however, examining past returns can at least give us an idea of what to anticipate.

I don’t think 1, 3, 6 or 12-month returns are a valid measure of equity returns. In my view, anything less than three years is a waste of time. While three years is generally acceptable, I would advise taking into account five or more for optimal results.

Let’s begin by examining the rolling returns. If you don’t know what those are, I suggest you read the chapter to get acquainted.

I’m going to post regular update snapshots from the Rupeevest website. With any luck, Rolling returns of funds should be available on Coin, our mutual fund platform in the near future.

Here is the three-year rolling return of the Kotak Standard Multi cap fund –

As illustrated, from September 2012 onwards, I have the three-year rolling return. The blue line stands for the fund’s three-year rolling return, while the grey is that of the benchmark.

The blue line will immediately stand out for you. It displays higher returns than its corresponding grey line, showing that the fund has outperformed its benchmark.

Over the past three years, this fund has seen an average return of 15.2%, outperforming its benchmark with a difference of 9.87%.

Upon observing a high-performing fund, you should take a pause and ask yourself why it is doing so well. Is the fund taking on greater risk than its benchmark?

We’ll get to the bottom of this soon.

The difference between the fund and its benchmark was substantial at first, yet it has reduced since mid-2018.

Is the fund losing its allure? One potential explanation could be its speedy increase in AUM.

When looking at the returns, consider not only the average but also the minimum and maximum to get an understanding of how much they vary.

The fund has delivered impressive results, exhibiting a minimum of -5.19% and a maximum of +31.2%. Its benchmark is not far behind with a range between -6.97% and +23.53%.

It is essential to recognize that you are examining data over a three-year period; however this alone is not sufficient for scrutinising an Equity mutual fund. To gain an accurate perspective it is critical to review the five and ten-year data too.

This fund’s 5-year rolling return is compared to the Nifty 200 benchmark.

In a 5-year period, the fund has shone impressively compared to its benchmark – registering an average of +16.51%, while the benchmark is lagging at +10.46%. This performance aligns with what was experienced over the 3-year time frame.

The dispersion in returns can be seen in both the lowest and highest figures. The fund has a positive return of 1.18%, while the benchmark is negative at -2.28%.

Nonetheless, the difference between the two has lessened, similar to what can be seen in the 3-year rolling return.

Finally, let’s analyse the fund’s performance over a 10-year period. It should be noted that there may not be enough data points to accurately assess its performance.

The 10-year rolling return of 12.07% is far above the benchmark’s 7.48%, quite impressive in my view. Moreover, the fund boasts an 8.59% minimum compared to the benchmark’s 3.79%. On top of that, it has posted an outstanding return of 14.56% versus the benchmark’s 9.67%.

Based on the rolling return data, there are a few apparent things –

  • Why is the spread shrinking? Is the fund losing its sheen?
  • While the returns are impressive, is this coming at the cost of higher risk?

The first question is tricky to answer. There has been no change in fund manager, so it’s unlikely that the investment style has changed. Is this because of its large AUM? It’s hard to say definitively, but my opinion is that that could be a factor.

Have a look at the trailing returns as on date –

It’s clear that, over the last three years, this fund has lagged behind the benchmark. Moving up to five-year analysis shows the two are evenly matched; while looking at the last decade of performance indicates a slight edge for our fund.

Taking into account the past few years, it’s clear that I’ve seen good returns – though a lingering question remains: will that trend continue? What stands out is the fact that this investment has outperformed those of its peers in the Equity Multi cap segment.

Let us now turn our attention to the risk metrics of this fund, one of the most significant parts of our review.

– Risk – Return matrix check

It can help you understand the risk-reward relationship. I think it has a lot of potential to help investors make decisions guided by facts and figures.

By selecting a view across 3, 5, and 10 years, I have chosen to focus on the five-year option.

To begin with, I focus on the fund’s risk in comparison to the benchmark, as well as its performance over the same period. It is clear that the returns have been commendable, so no further inspection is needed here. The risk relative to the benchmark is ‘below average’, which is promising news. For further details, I now turn to analysis of the data matrix.

This matrix is ordered according to the Y-axis, which returns a higher value as you move up it. The X-axis measures the amount of risk, so the further along you go, the more exposure there is. If Module 9 on ‘Risk Management’ has been read, then this matrix should already be familiar; otherwise, it’s important to realise that there is a correlation between return and risk.

Ignore the blue and yellow controls and commence with the red square, at the core of the matrix. This area belongs to the benchmark, and by its position, we can infer it has yielded 10% while taking on 19% risk.

Examine the yellow button; it’s a part of the category. It is evident that the yellow button is on the same level as the red square, implying that the ordinary classification risk is comparable to that of the benchmark’s risk—19%.

Unfortunately, 19% of the category fails to achieve the benchmark’s return, coming in slightly lower.

If you had to choose between investing in a category or its benchmark, it would be preferable to go with the benchmark since it provides superior returns for a similar level of risk.

What about the fund in perspective?

The fund offers an attractive risk-reward ratio in comparison to the benchmark. It has achieved relatively similar returns while taking on less risk and, from my perspective, that is beneficial.

Paying a fund manager for active management doesn’t guarantee superior returns. Achieving results similar to the benchmark while reducing risk is evidence of success, and can lower fees as an added bonus.

So on a 5-year mark, this is looking good. Shifting gear to the 10-year window

Over time, the category and benchmark still have the same risk-return profile (18% risk, 12% return); however, the fund is more impressive in terms of risk versus return with slightly lower risk and higher returns.

At this point, let us analyse the capture ratios to assess the fund’s risk and reward profile.

– Capture ratios

In the prior chapter, we spoke of capture ratios. Hopefully, you are now familiar with this concept. The capture ratio on a 5-year span is presented here –

The fund house has demonstrated outstanding risk management skills, as evidenced by the fact that it has managed to capture 90% of the benchmark’s downside in its downside capture ratio.

The capture ratio gets better on a 10-year basis –

The fund has matched almost all of the benchmark’s gains while limiting losses to 87% of what the benchmark experienced. In comparison, this is much better than the category average.

In conclusion, Kotak Standard Multi-cap fund appears to have great potential. Should you rush in and put your money into it? We’ll be exploring that further in the next chapter.

Finally, let’s not overlook the fact that relying on ratings assigned to funds by third-party sources is fruitless. Doing your own research and coming to your own conclusion on an investment decision is far superior.


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