The year 2022 ended. We can compare performance for various diversified equity mutual funds. As per valueresearchonline.com, there are 381 diversified equity mutual funds with a history of last year. The best fund delivered 26.5% and the worst -19.3%. That is a huge spread in performance! Importantly, Nifty and Sensex funds (ETF or mutual fund) delivered ~4.1% in the last 12 months. If you plot a histogram of funds outperforming index funds, ~75% of diversified equity funds have underperformed a simple index fund. It is anybody’s guess if this year’s funds that beat the index will do so next year. That 75% number should not shock us. We know this already. History is not on the side of active mutual funds for sure.
My own investment proposal for most folks is as follows:
Index funds as a core portfolio.
Have a satellite portfolio that is different from the index but invests based on what I think is factor investing in mutual funds.
I would advise you to speak to your advisor before doing your investments. I am not a financial advisor.
My active funds
Let’s review the performance of the funds I invested in last year.
Here is their performance against the index (Nifty500) for comparison. Data is from the Amfi website and niftyindices.com
Below shows the same in tabular form:
Basically, the active funds I chose were useless (against the broad index) for CY2022. I paid a bunch of money to the AMC to get the same return as the index. Note that the above performance would be worse than Nifty50 which has delivered a further ~1.3% excess returns. Interestingly, 5 of the 8 funds did better than the index (I think that is a good hit ratio) but one single fund massively underperformed. What is more worrying for me is the combined portfolio feels like another index-hugger strategy. It remains to be seen how this behaves going forward.
Conclusion
The calendar Year 2022 was another banner year for the index fund. The active funds I chose to invest in, also behaved like an index fund. I have a chosen set of funds for next year based on the method described here. For most people, I would say stick to the index (evidence from my own experience this year is probably good enough for you to consider index funds and not active funds).
Happy Investing and may the next 12 months be a period of happiness and prosperity for you and your dear ones.