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Why HDFC Top 200 and UTI Opportunities are good fund when their SIP returns for last 6 years are not good

SIP return of HDFC TOP 200 are 1 year 23.2, 2 year 5.31, 3 year +4.54, 4 year +7.6, 5 year +7.78, 6 year +7.61, quite similar to SIP return of UTI opp fund. When SIP return of 6 years are not above 8 why these funds are said to be good fund?

Feb 10, 2016 by Sundeep Nigam, Haridwar  |   Mutual Fund

It is the problem of trailing returns. If you follow our blog regularly, we have repeatedly said, that trailing returns have a recency bias. The Nifty closed below 7300 today, which implies that it is almost 20% below the all time high made in early March 2015. It is natural that a large cap fund like HDFC Top 200 decline by a similar percentage. Trailing returns are calculated by taking into account the performance of a fund based on the latest NAV of the fund. On the other hand, as an investor, today's NAV is not relevant unless you planned to sell units of the fund today.

We, in Advisorkhoj, do not think that trailing return is the single most important measure of long term fund potential, for the reason mentioned above. In fact we think that rolling returns over a long time horizon is a more important measure of fund performance consistency. You can check rolling returns of any mutual fund scheme by going to our Rolling Returns tool (please hyperlink) in our Mutual Fund Research section.

Other than rolling returns, fund manager and fund house track record are also important parameters. On both these fronts HDFC Top 200 fund and UTI Opportunities Fund have strong track records. HDFC Mutual Fund is the largest AMC in India and HDFC Top 200 is one of the largest Mutual Fund schemes in terms of assets under management. The long term track record of the fund manager of HDFC Top 200 fund is terrific. Unit Trust of India is the oldest mutual fund house in the country and even post the restructuring has one of the best fund management teams in the country.

Bear markets, if we can describe the current market conditions as such, do not last forever. The market will recover as it always has. Post recovery, the returns pictures of these two funds mentioned by you will be very different. It is true that HDFC Top 200 and UTI Opportunities Fund have been relatively underperforming versus their top performing peers. But it is difficult to attribute the underperformance to specific factors that are not related to the prevailing market conditions. If the funds continue to underperforming even after the markets recover sufficiently, then you can have a case for switching to better performing funds. Till then, it is prudent to patient and ride out this volatility. We have seen in the past that good funds recover well after a period of underperformance.

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