PERSISTENCE OF RETURNS FROM MUTUAL FUNDS

 In the context of mutual funds, too, investors have been pondering

over the question of the persistence of results since forever. Be it any field, consistency of results is something that can be found in any prosperous venture. As it is famously said, persistence is key to success.

Let's start by understanding the importance of uniformity of returns. Investors often get misguided by investing in a mutual fund seeing its highs on a particular day, or vice-versa. This practice does not paint an accurate picture of the performance of the mutual fund. A fund must be analyzed to see if it can sustain itself in a dynamic environment.  It must be ensured that it earns returns higher than the market at all times and not just a point in time.

Now the question arises that what defines this consistency? A mutual fund can be classified as a stable one when its performance is better than the benchmark at any given time. As per SEBI's guidelines, every fund house devices its benchmark index, which portrays the returns a particular fund should ideally earn. The actual results should be compared with these benchmarks in regular intervals to judge the current standing.

After multiple studies, a cloud still exists over the persistence of returns from a mutual fund. However, one can conclude that a persistent investor can definitely stay ahead of the market risks these funds are subjected to.

-Manan Pahwa

Student -NMIMS