Don’t Judge a mutual fund by its Short Term Performance

POSTED BY Jagoinvestor ON September 22, 2009 COMMENTS (20)

“Don’t judge a person by their Sunday appearance” applies to Mutual funds also. Best Mutual funds are the best over most the time frame and Worst mutual funds are the worst performers in most of the time frame.

What I mean by this is that the best performers return wise in 5 yrs, 3 yr and 1 yr are almost at the top and worst performers are always in the bottom for 5 yr, 3 yr and 1 yr time frame. Let us look at the Chart of mutual funds performance

I compiled a list of 78 top mutual funds on the basis of 5 yrs Return and plotted a graph of returns for 5 yrs, 3 yrs and 1 yrs for them accordingly. To smooth out the data, I took a 10 period moving average (i.e. I took an average of Top 10, then an average of 1-11, then 2-12…) Just want to see what is the pattern of Mutual funds list. Have a look below:


If you look at the chart above, you will see that the Best performers (Top 10) were in the best performers list for 3 yrs and 1 yr time frame also. And at the same time, the worst performers in 5 yrs time frame were the worst performers in 3 yrs and 1 yr time frame, whereas the opposite was not true… See this video post on how to choose a good mutual fund for yourself?

Here are the Learning’s and conclusions:

Do not judge a mutual fund by it’s short-term Performance like 1 yr

There were many mutual funds who gave top returns in 1 yr time frame (See the orange line, see all the top positions) but not all of them were the best in 5 yrs time frame. The same thing happened with 3 yrs time frame: there were 2-3 mutual funds at the top in 3 yrs time frame but they were not best in 5 yrs time frame. See why SIP works well in long-term

Short-term performance does not give enough indication of Long-term

This is common sense, just like meeting a person for few hrs or days cannot tell us about his/her nature or behaviour, the same way a mutual fund cannot give a good indication of its long-term perspective from short-term performance.

In the above chart you can see that if I gave you just one year performance chart and it was sorted by returns, you could never tell which amongst the top would also be at top in 5 yrs time frame.

Bad performance in short-term should not be taken too seriously.

This is kind of same thing which I said above, but let’s see it with a different perspective. Short-term performance should not be the only reason for selling your mutual fund or Shares. We generally take our decisions based on short term performance, that is true for Life also.

We need patience and give time to our investments to show its true colors. Good investments happen by giving time to your investments and Early Investing, not just by choosing one.

Comments please, your 4-5 kind words will help me know if you liked it 🙂

20 replies on this article “Don’t Judge a mutual fund by its Short Term Performance”

  1. Sandy says:

    Hey Manish, planning to foray into the following GROWTH schemes on SIP: HDFC Top 200, HDFC Bananced Fund, HDFC Prudence Fund, IDFC Premier Equity Fund PLAN A, DSPBR Top 100 Equity Fund. Do I stand well-advised?

    1. Sandy

      Why so many ? just put in HDFC top 200 & DSPBR Top 100 Equity Fund . thats all


      1. Sandy says:

        I had invested in two top funds SBI Magnum and HDFC Taxsaver earlier. I saw that while the former performed at 8-10% p.a the latter did about 14-16% p.a last 2-3 years, averaging out the performance levels. I was hoping to average better across 3-4 well managed funds. Is it a wrong way of thinking? Since a single bad performing fund wipes out the gains from the good one.

        Let me know what you think ……

        1. Sandy

          yea 2-3 funds are good for diversification


  2. Sandy says:

    Hi, have about a Lac from bonuses this year and want to be able to channel this into investments using MF as my chosen money market instruments. Kindly let me know if I should do a SIP or go lumpsum. Also need you to help suggest about 3-4 good MFs that I can invest in. Also is there any website that provides year-on-year returns of Mutual Funds. The ones I know rate them, worship them etc etc and give 3 yr, 5 yr and since inception performance figures but never the Y-on-Y data. Last but not the least, have been invested the last 3 plus years in HDFC Taxsaver and SBI Magnum tax gain and now thanks to the impending DTC norms, am breaking free and planning to divert this money (4K+4K) into SIPs some good funds. Can you pls help recommend a few?

    1. Sandy

      You can do a SIP for next 6 months out of the money you have . Valueresearch shows the Y–O-Y data (go to PERFORMANCE section of amutual funds page) .get out of SBI magnum now


  3. binod mahanta says:

    Dear Sir

    I want to know are mutual funds are tax exempted,or i have to pay the tax when i sold the bond say after 20 year

    1. Binod

      It would depend on the tax rules at that time when you sell. As of now Equity mutual funds are exempt from income tax provided you sell them after 1 yr. However you have to pay tax on debt funds


  4. Manish Chauhan says:

    @Business Pandit

    Thanks for the link 🙂

    @Samson Smith

    Welcome to Jagoinvestor .. I checked your blog , its pretty cool .. with some very good articles 🙂 .. liked it .


  5. Samson Smith says:

    Great post, as i am searching for such good information about short term and long term, it will surely help me a lot.

  6. Business Pandit says:

    For comparing one-time and SIP returns, go to and check the "Returns Calculator".

    For historical returns, check

  7. vikram says:

    good one manish

  8. Manish Chauhan says:


    Bar chart is not a suitable one for this , I will explain you the chart . So on x axis its performance of 78 funds .. you can see it as 78 different small points and on Y axis is the CAGR return for them . So if you see first circle its showing some 6-7 funds which were top performers in 3 and 1 yrs time frame .. then as yu move left you can see the performance of others funds and their returns dropping and finally you have funds with least performance . I hope you got it . If not revert back .


    Its a great Idea, I would have loved to implement it , However it would be too much of work and collecting data is an issue , How do i get per month NAV of all the mutual funds , any idea ?

    Also you can look at for time being ..


    Thanks, I would love to know what else could have made it much better .. what part was not good .


  9. Zindagi says:

    Another great article with lots of info, good work Manish

    Thanks for posting!

  10. Anonymous says:

    As usual great job manish..I have one idea for further can come up with a comparison(5yr/3yr/1 yr) between the Onetime and SIP investment.that way we can highlight the benefit of SIP or the Rupee cost averaging process for the readers


  11. Manshu says:

    That's a great point you make,but I am unable to decipher the chart myself, this may probably be better as a bar graph?

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