Morningstar says don’t blindly invest in chart topping mutual funds: Here’s why

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Published: January 5, 2018 4:43:15 PM

In its latest report, Morningstar has compiled a list of the best mutual funds of 2017. We explore why investors should not blindly invest in chart topping mutual funds.

retirement, all about retirement, How to manage retirement, latest news on retirement, best mutual fund categories for retirees, what should one do when retire, safe funds for retirees, mutual fundsMorningstar says that investors should not blindly invest in chart topping mutual funds. (Image: Reuters)

The mutual fund industry was flush with funds in 2017, and saw saw its assets base jump to over Rs 22 lakh crore, adding more than Rs 5.4 lakh crore, buoyed by strong participation from retail investors. Interestingly, a few mutual funds have returned more than 65% in the year. According to a report by Morningstar, SBI small and midcap fund tops the list of best performers with returns of 78.66% in the year, followed by L&T Emerging Business Fund with returns of 66.5%, both from the smallcap category.

From the large-cap category, IDFC Focussed Fund topped the list with returns of 54.4% followed by ICICI Prudential Next 50 Index which returned 45.6%. From the flexi-cap space, Principal Emerging Bluechip Fund returned 49%. Sharing its observation from the chart toppers, Morningstar says that investors should not blindly invest in chart topping mutual funds.

“It is a stark reminder that investors should never blindly buy chart toppers. HDFC Mutual Fund, Aditya Birla Sun Life Mutual Fund and DSP BlackRock Mutual Fund, all had at least one fund each featuring in 2016’s list, but get no mention in 2017,” Morningtsar said in a note. Notably, Birla Sun Life Frontline Equity Fund and DSP Blackrock Micro Cap Fund were among the best performing funds in 2016.

Total AUM of all the fund houses put together soared by over Rs 5.4 lakh crore, or 32 per cent, to Rs 22.35 lakh crore at the end of December 2017 from Rs 16.93 lakh crore in December-end 2016, latest update with Association of Mutual Funds in India (Amfi) showed.

Amfi Chairman A Balasubramanian attributed the impressive surge in assets base to ‘aggressive’ investor awareness campaign both at the individual players’ level as well as at an industry level. “The ‘Mutual Fund Sahi Hai’ campaign has created huge impact in building confidence among investors. Mutual fund distributors too have played a key role in connecting with their existing and new customers. It is also believed that investors are no more interested in buying into traditional asset classes such as real estate and gold thus moving to financial asset class,” PTI reported A Balasubramanian as saying.

In its latest Financial Stability Report, RBI notes the swelling assets of mutual fund industry, buoyed by DII investments. “Mutual funds as an asset class seem to be entering the maturity phase in India with broadbasing of investors and geographical spread. Assets under management (AUM) increased from Rs 17.55 trillion in March 2017 to Rs 20.40 trillion in September 2017,” RBI said.

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