Synopsis : Consistently beating benchmarks over various periods signifies a mutual fund's strength. Investors prioritize historical returns, but past performance doesn't guarantee future success. Large-cap funds allocate most assets to top-ranking stocks, with some funds outperforming consistently while others show sporadic success.
Delivering strong performance for a year might be seen as mere happenstance, but consistently outperforming the benchmark over various periods stands as a stronger testament to the efficacy of a mutual fund.
When retail investors select a mutual fund scheme, they typically accord significant importance to its returns compared to other schemes within the same category.
For instance, when considering an investment in a large-cap mutual fund, it's prudent to evaluate the historical returns of various schemes across different mutual fund providers to assess their potential over the long term.
While investment experts often advise against solely basing investment decisions on a scheme's past performance, commonly referred to as historical returns, it's unwise to disregard this aspect entirely.
Here, we analyze several large-cap mutual funds based on their historical returns over periods such as one, three, and five years. While a mutual fund scheme might perform well in a given year by chance, consistent strong performance over multiple years underscores its enduring potential.
Large-cap funds allocate 80 percent of their assets to large-cap stocks, as per SEBI's mutual fund categorization, where large-cap stocks are those ranked from 1 to 100 by market capitalization.
Within the large-cap category, seven mutual funds have outperformed the benchmark over the past one, three, and five years. These include Nippon India Large Cap Fund, Tata Large Cap Fund, and ICICI Prudential Bluechip Fund.
However, there are also mutual fund schemes that have shown strong performance in the past year but failed to consistently outperform the benchmark over three- and five-year periods. Such schemes include DSP Top 100 Equity Fund, Bank of India Bluechip Fund, HSBC Large Cap Fund, Quant Large Cap Fund, and Taurus Large Cap Fund.
It's important to note that past returns of mutual funds do not guarantee future performance, just as a stock's performance in the past year is no guarantee of its future performance.
