New MFs offer 100-200% returns in one year

Many newly-launched schemes from young AMCS are offering eye-popping returns. Two such AMCs are Quant Mutual Fund and PGIM India Mutual Fund. In the last one year, both these AMCs have managed to get multiple schemes on top of return charts. However, many investors have been asking about these schemes and the extraordinary returns posted by them. We spoke to Rushabh Desai, an AMFI-registered mutual fund distributor based in Mumbai, to answer some of these questions asked by investors.Questions asked by investors:1. Should we invest in schemes that are new but have performed really well in the last one year?2. Can a scheme actually give 100% plus returns in one year?3. Why are our existing schemes not giving such high returns in one year in the same market?His response to these investors:Investors should never venture into equity funds looking at their short-term returns, even when the fund has delivered substantially high returns(100%) in recent times. Some of Quant AMC funds like its small cap and infrastructure funds have delivered stellar 1-year returns of around 207% and 149% respectively but they haven't been consistent outperformers in the long run. Quant AMC is a new fund house that took over k the Escorts Mutual Fund around 4 years ago. On a 5 year (CAGR) daily rolling basis out of 3223 observation days, Quant Small Cap Fund has unperformed around 61% against Nifty Small Cap 250 TRI. similarly its infrastructure fund out of 2819 observation days has underperformed around 94% against Nifty 500 TRI (Source - ICRA).This clearly indicates these funds have been inconsistent performers in the long run. Thus, It is very important for investors to see the long term performance of any fund before investing. Also, the portfolio turnover ratio of these funds have been substantially high which could be one of the reasons for its recent high returns. It is very unlikely these funds will deliver the same kind of returns from this point onwards. Investors should not get carried away and should not venture into inconsistent funds.This was one example. Same for the new funds of PGIM India MF. Even though PGIM is an international player and they took over DHFL Pramerica, the management team is at a nascent stage with a small AUM. To churn such a small portfolio is easy and hence earn big returns. As the fund size grows, churning portfolio doesn't pay this much. Investors should understand that investing in a scheme should be based on research. How the fund manager has dealt with different market cycles is important. Many AMCs which were topping the return charts in the last two-three years have been sliding down on returns recently. It is not possible to sustain 100-200% returns consistently. So, your decision should not be based on this factor.You could have earned 200% returns in Quant Small Cap if you were an investor at the lowest AUM last year. This is called timing the market. Retail investors should focus on their investment strategy and not on 1-year returns.

from Economic Times https://ift.tt/3fB2LVb