Past returns not a measure to evaluate scheme performance

Many times investors use the past returns record of a scheme to arrive at an investment decision. These past returns play a key role in determining the efficiency of the scheme and the fund manager. It is also one of the primary gauges of evaluating the consistency of a fund manager. But post categorisation and reclassification will this concept work for investors?

Currently, AMCs are busy positioning products which will strictly adhere to the rules of the SEBI and define the type of securities which the schemes can hold in their respective portfolios. Post categorisation and reclassification, every fund house will now be allowed only a single fund in each category. Owing to this, some funds are either being renamed, reclassified, or both.

Recently, SBI Magnum Global has reclassified its current Mid-cap focus to become a MNC-focused fund without any particular market cap bias. That is, the scheme will invest minimum 80 per cent of its corpus in companies with global ownership which are listed abroad. With this, the schemes portfolio will be adjusted and churned accordingly. Similarly, the Reliance Mid-cap and Small-cap schemes will be merged and form a focus fund due to which the schemes portfolio will be churned in the coming period to adhere to the rules.

In such scenario, the past record of returns of these fund will be irrelevant for evaluation as they won’t reflect the changed scenario which can mislead investors. So in the coming quarters, investors are advised to judge the performance of the schemes with its respective benchmark and its performance. However, investors who are invested in such a schemes which are now been re-classified should check the investment goals and objective of the scheme and realign their investment accordingly.