Just looking at returns while choosing the next fund to buy is a sure way to lose money. What investors need is some measure of a fund’s performance over the long term, while keeping an eye out on the fund manager expertise and costs.
Mint 50 uses a two-step process to filter out schemes. Some risks are quantitative and therefore they can be mathematically arrived at, while a few others are qualitative and need a subjective approach. Among the former is a number called downside risk that measures a fund’s return per unit of risk. The higher the risk-adjusted return, the better the fund because it shows that the fund has average to above-average return, along with lower risk.
Mint 50 uses ratings from mutual fund tracker Morningstar to generate a shortlist of funds. Morningstar gives star ratings on the basis of risk-adjusted returns, going from a low of 1 to a high of 5. Mint 50 picks up all funds with a threshold three-star rating. Funds can have off-periods in their life and drop off the 4- or 5-star threshold. A three-star rated threshold gives us a universe of 292 funds.
Next are the qualitative parameters where we consider fund mandates, returns consistency, portfolio analysis and fund manager audit. The analysis looks at portfolio performance across rising and falling market periods to see how a fund navigates market volatility. A portfolio analysis gives insights into what the fund manager is really doing behind the net asset value number. The fund’s cash policy and its ability to stick to its mandate, etc., are also factored in.
We carefully look at how a fund performs in bull and bear market cycles since we need funds that do well in both. Many schemes get filtered out at this stage as a bull market lifts all boats. The result of these filters is Mint 50. We do hope you make money.