Yes, there are cases galore, but a close study of stock movement keeps you in safe waters.
One often hears of multi-bagger stocks that have fetched returns many times the initial investment, but do you know many mutual funds (MFs) have done the same?
And these are less of an exception than you might think. If you had invested Rs1 lakh in the best-performing mutual fund at its inception in the mid nineties and had done nothing else but stick around, chances are your investment will be worth nearly `50 lakh today.
One look at the best-performing funds in terms of absolute returns since inception, and it’s easy to figure out that all the top 10 schemes would have fetched you at least a twenty-bagger. A few examples would suffice.
As of January 1, 2013, Reliance Growth Fund has grown 49.53 times since its launch in October 1995. Similarly, Franklin India Bluechip Fund is up 46.66 times since December 1993 and Sahara Tax Gain Fund 33.82 times since April 1997. Even for the 10th-ranked fund, HDFC Tax Saver Fund, it’s a jump of 23.64 times.
To be sure, the stock market was at considerably lower levels in the nineties, and all the star performers went on stream between 1993 and 1998 – a downbeat phase for equities. The youngest fund among the top ten was Birla Sun Life Equity Fund, which was born in August 1998 (up 26.85 times).
But even if one considers the lowest level the Sensex hit between January 1, 1993 and December 31, 1998 – 2036.81 – it has risen only 9.61 times in the period under review. Dhirendra Kumar, chief executive officer of fund tracker Value Research, stated that while many funds have outperformed the Sensex to an unusual degree, the point-to-point returns may not accurately reflect how much money investors actually made due to late entries and short holding periods. “A lot of these funds were much smaller to begin with, and a lot of investors came in after the bulk of the performance was behind them. Also, the average holding period of investors is two years,” he pointed out.
But there’s a twist. These toppers have fallen on hard times in more recent times. None have made it to the top ten list as far as returns are concerned over the last 3 years or 5 years. Only four managed to find a place over the last 10 years.
Kumar is all for due diligence. Investors, he said, should take a close look at the performance of funds through both bull and bear phases before picking funds and invest in a regular fashion with a long-term view to maximise returns.
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