Asset Weighted Returns of MF Categories
In the last one year, the frontline indices are up by little more than 12 per cent while the broader indices are either flat or negative. This is despite the last one and half months of the year being good for the broader indices, where they outperformed the frontline indices. Nevertheless, when it comes to the mutual fund categories, most of the funds dedicated to broader indices have outperformed their benchmarks. The average return generated by 23 funds dedicated to midcap stocks is 4.12 per cent. Now, compare this with the mid-cap index that is down by 3 per cent.
There is more than one way to measure the performance of an investment. A time-weighted return reflects simple investment returns and shows the amount of money grown in a given time. Another way of measuring the returns is asset-weighted returns.
Many times, the average number get influenced by some outliers. For example, if you have three investments of Rs 10,000, Rs 12,000, and Rs 35,000 and these investments generated a return of 30 per cent, 8 per cent, and 10 per cent, respectively. The average return comes out to be 16 per cent. This higher number is due to an outlier (30 per cent) and the actual return is just 12.4 per cent.
We have done the same exercise for several MF categories and tried to understand the returns generated by different categories for their investors in the last year. We have taken the latest AUM to come out with asset-weighted returns. You can see that under financials, 12 funds have generated an average return of 20.8 per cent; however, the asset-weighted return is 4 per cent lower. This is because the Taurus Banking & Fin Services Fund and Baroda Banking & Services Fund have generated returns over 25 per cent and have AUM of Rs 8.4 crore and Rs 49 crore, respectively.
Average of Asset Weighted and Actual Returns
| Category | No. of funds | Asset Wt Returns (%) | Actual Returns (%) | Return Difference |
| Financials | 12 | 16.99 | 20.80 | -3.81 |
| International | 7 | 29.46 | 24.53 | 4.93 |
| TECH | 5 | 9.26 | 10.07 | -0.81 |
| Dividend | 6 | 4.73 | 4.40 | 0.33 |
| Large & Mid Cap | 24 | 10.41 | 9.86 | 0.55 |
| Multi Cap | 52 | 10.77 | 10.94 | -0.17 |
| Large Cap | 35 | 11.45 | 12.68 | -1.22 |
| Index | 30 | 12.02 | 11.38 | 0.64 |
| Consumer | 13 | 6.11 | 6.46 | -0.35 |
| Infrastructure | 19 | 2.42 | 2.49 | -0.08 |
| Mid cap | 23 | 4.01 | 4.12 | -0.11 |
| Multinational | 4 | 4.54 | 3.82 | 0.71 |
| Value | 17 | 2.92 | 3.22 | -0.29 |
| Small Cap | 20 | -3.14 | 0.17 | -3.31 |
| ELSS | 42 | 9.58 | 9.11 | 0.47 |
| Pharma | 8 | 3.73 | 4.76 | -1.03 |
| POWER | 4 | -0.75 | 2.51 | -3.25 |
| Thematic | 17 | 11.65 | 9.08 | 2.57 |
From an investor perspective it is important to know the asset weighted returns to come out with a conclusion which sector has performed in a given period. Investing purely based on past returns is not advisable and taking average returns of a category has the potential of ruining your future returns.