Does ‘always invest in the best mutual fund strategy work?
We come across a lot of investors who ask which is the best fund to invest in. So, does always investing in the best fund reap benefits? Let’s find out.
Whether it's life or investments, people want to have the best. Although, keeping this attitude might be fruitful in life, but when it comes to investing in mutual funds, it might not prove to be a good idea. This is because winners rotate. In order to decode this, we carried out a study.
In this study, we took found the best mutual fund based on its one-year trailing return. Then we forward looked its performance for next one year. Moreover, we carried out this exercise in the bull as well as bear phase. For the bear market, we considered the year 2008, while for the bull market we considered the year 2014.
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Top Performing Funds in Bear Market (2008)
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Fund Name
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Category
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Returns in 2008
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DSP World Gold Fund
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International
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4.46
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Fund Name
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Category
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Returns in next one year
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ICICI Prudential Value Discovery Fund
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Value/Contra
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128.87
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If you see, in the year 2008, DSP World Gold Fund was the best performing MF, but in the next one-year ICICI Prudential Value Discovery Fund was the best performer. Let us now check how things are if you buy the best fund in bull market.
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Top Performing Funds in Bull Market (2014)
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Fund Name
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Category
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Returns in 2014
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SBI Small Cap Fund
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Small-Cap
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110.45
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Fund Name
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Category
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Returns in next one year
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SBI Healthcare Opportunities Fund
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Sector - Pharmaceutical
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26.99
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As you can see, in both cases the winner changed its position. Therefore, we would recommend you to look at the funds from various other perspectives such as risk, returns, portfolio, fund manager, etc though, studying the fund this way won’t ensure the best fund but it would ensure that you invest in a fund which is quite consistent.