Should you invest in a highly-rated large-cap mutual fund scheme?

In India, the mutual fund industry is growing at a greater pace. In 2021 we have seen several NFOs coming up, also mutual funds are launching various schemes. As per AMFI, currently, there are 1,435 schemes (including ETFs and FoF) as of October 2021. This gives an investor various options to invest as per their risk appetite, needs, objectives and investment horizon. With a gamut of mutual funds schemes offered, this can prove to be intimidating for an ordinary investor. So, many investors, invest based on the rating given by various agencies such as CRISIL, MorningStar and Value Research. Most of the investors park their funds in schemes that are highly rated or rated 5 stars or 4 stars. A mutual fund rating is usually a measure of a fund's historical risk-adjusted performance over different time frames compared with the funds in the same category. The ratings are based on different periods such as three-year, five-year or 10-year combined to give a single measure of risk-adjusted-performance.

So, let's look at the highly-rated fund's one-year performance and check whether they were able to outperform their benchmark or not:

“Click Here” to have a look at ratings of large-cap funds offered by various mutual funds.

As we can see in the above table Canara Robeco Bluechip Equity Fund performed good in three years but was not able to outperform in one year. Rest other funds which are highly rated have outperformed its benchmark. So, one should not only rely on ratings of the fund but also, he should assess the performance of the fund frequently.