Mutual Fund Award 2022

Since mid-June 2022, equity markets have been on a tear. The Nifty 50 gained almost 16.55 per cent or 2,531.75 points as of August 16, 2022. This is most likely due to a trend reversal in foreign institutional investors’ (FII) investment. Since October 2021, FIIs have been net sellers, selling shares worth ₹3.91 lakh crore. FIIs have purchased shares worth ₹16,218.5 crore since August 2022. Furthermore, there was not a single trading day in a month till August 17, 2022 when FIIs were net sellers. This demonstrates that FIIs have become net purchasers. 

 Aside from that, even at the macroeconomic level, both the US and Indian inflation appear to have slowed down. This suggests that various central banks will slow their rate hikes. This is anticipated to function as a catalyst for growth in the equity market. Furthermore, equity valuations appear to be sensible, given it trades below the historical mean.

The valuations of Nifty 50 fell dramatically. The Nifty 50 price to earnings (PE) ratio fell from 42 on February 8, 2022 to 18.92 on June 17, 2022. The current market bounce has also helped mutual fund investors. Indeed, individuals who purchased at lower prices had good returns. The table below demonstrates this more clearly.

The aforementioned table shows that the leading investments during the previous two months were in infrastructure, financial services, consumption and automobile funds. The lowest average point-to-point return generated was 10.2 per cent. Investor sentiment is expected to suffer as a result of the volatile financial markets. According to monthly data issued by the Association of Mutual Funds in India (AMFI), net inflows into equities mutual funds plummeted by 42 per cent in July to ₹8,898 crore from ₹15,497 crore in June 2022. The mutual fund industry’s total assets under management increased to ₹37.74 lakh crore as of July 31, 2022 from ₹35.64 lakh crore. In July, Debt Funds had net inflows of ₹4,930 crore compared to net outflows of ₹92,247 crore the previous month.

Small-Cap funds and flexi-cap funds were the biggest winners among equity funds with net inflows of ₹1,779 crore and ₹1,381 crore, respectively. In July, all open-ended equity fund categories had net inflows. According to the most recent AMFI data, net flows in retail mutual fund schemes were positive at ₹3,847 crore as of July 31, 2022, continuing a streak of 17 months since March 2021 when they first started. Funds raised through retail schemes were ₹32,439 crore, outweighing redemptions of ₹28,592 crore during the month.

The total number of mutual fund folios has reached a record high of 13.55 crore, up 29 per cent year over year and one per cent month over month. According to AMFI, the number of SIP accounts reached an all-time high of 5.61 crore in July 2022, with monthly SIP contributions totalling ₹12,140 crore. Because PE is currently trading below its 10-year norm, this is a favourable moment to invest in equities. There is nothing better than using the Equity Sentiment Index® as a guide if your mutual fund portfolio includes both equity and debt funds. The Equity Sentiment Index (ESI) is a unique tool developed by DSIJ that assists in obtaining insights on asset allocation. 

The ESI suggests allocating 60 per cent to equities and 40 per cent to debt. The index is also hanging near its historical mean. This suggests that equity markets are now approaching their true value. That said, many investors still struggle to choose an appropriate mutual fund. This is due to the fact that picking mutual funds requires a significant amount of number crunching and data processing. It necessitates not just quantitative but also qualitative investigation.

In that case, we have awarded few hand-picked mutual funds from many broader equity categories in our special edition on mutual funds. This will be an excellent beginning point for people who are new to mutual funds. Investors who already have a mutual fund portfolio might use this as a reference to see if they have suitable mutual funds. Aside from that, we awarded the finest equity fund manager as well as the asset management company (AMC) in equity, debt, and hybrid.

Methodology This section discusses the process we used to pick the award winners in each category, the best equity fund manager, and the best AMC in equity, debt and hybrid.

Equity Mutual Funds — We have awarded mutual funds from the below mentioned categories:

■ Large-Cap
■ Large and mid-cap
■ Mid-cap
■ Small-cap
■ Flexi-cap
■ Equity Linked Saving Scheme (ELSS)

We have ranked the funds based on their performance regarding two major parameters:

1) Returns — The weightage given to this parameter is 70 per cent. Here we measured the funds’ long-term, median-term and short-term rolling returns and gave equal weightage to them.

■ Long-Term Returns — For measuring long-term returns, we calculated five-year rolling returns over 10 years. Then we calculated percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks.

■ Medium-Term Returns — For measuring medium-term returns, we calculated three-year rolling returns over 10 years. Then we calculated percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks.

■ Short-Term Returns — For measuring short-term returns, we calculated one-year rolling return over three years. Then we calculated the percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks.

2) Risk — The weightage given to this parameter is 30 per cent. Here we measured the funds’ maximum drawdown, beta and downside deviation. For gauging this, we rolled each risk factor for every fund over three years for 10 years and then calculated its mean.

■ Maximum Drawdown — The weightage given to this parameter is 40 per cent.
■ Beta — The weightage given to this parameter is 30 per cent.
■ Expected Shortfall —The weightage given to this parameter is 30 per cent. We then combined the final returns and the risk score to get the final ranking funds in each category

Fund Manager — Here we have ranked the equity fund managers on various AUM weighted return and risk parameters. Furthermore, we gave equal weights to all the parameters.

■ Returns — Here we measured the performance of all the equity fund managers based on AUM weighted one-year, three-year and five-year trailing returns.

■ Risk — Here we gauged how each equity fund manager performed in terms of risk-adjusted return parameters. To understand this, we calculated the AUM weighted Sharpe and Sortino ratios

Fund House — We came up with the best fund house in three major categories i.e. equity, debt and hybrid. Various risk and return parameters were calculated to come up with a winner in each category. We calculated three-month, six-month and one-year AUM weighted trailing returns and asset weighted standard deviation was used as the risk parameter.

Note: All the calculations are as of July 2022. 

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