STEPS FOR SELECTING THE BEST OUT OF BETTER
OPEN ENDED, DIVERSIFIED EQUITY MF SCHEMES
INCLUDING Tax Saving ELSS.
1) Obtain the list, only of all 5 & 4 Star rated Diversified Equity MF schemes from www.valueresearchonline.com
2) Club all the MF Schemes from the above lists and arrange it alphabetically, to make one comprehensive list.
3) Sort this combined list by Fund Categories i.e. EQUITY > Large Cap, Large & Mid Cap, Multi Cap, Mid & Small Cap, Others and Tax Planning etc….
4) Create various different lists (in order to avoid comparing Apples with Oranges) according to Fund Category, out of the above, for intra MF Schemes comparison, within a particular Fund Category.
5) Ascertain the details of “ Risk & Volatility “ of each MF Scheme arranged in the alphabetical order and then plot respective “Values” of Sharpe Ratio (SR), Standard Deviation (SD), Alfa, R’Square and Beta against each MF Scheme in a tabular form.
6) Take the simple average of all these plotted Values, so arranged.
7) Attribute weightage i. e. 50% for SR, 30% for SD, 20% for Alfa respectively and obtain fresh Values. Please be careful while attributing & calculating Values for SD, as less the Value of the same is better while, more the Value of SR and Alfa, is better.
8) Take the summation of all the new Values horizontally, and arrive at one single Score of each such MF Scheme individually, including that the Score of simple Average of the Category.
9) Get the fresh list of Values {Scores} Vis a Vis each MF Scheme in the Category, in the descending order.
10) Eliminate those MF Schemes having total Score LESS than the simple Average total Score of the Category.
11) Take only top 3 total Score wise MF Schemes from each Fund Category. As far as possible more than one MF Scheme from the same Fund House be not short listed.
12) In case of tie, use other tools like respective R’Square [only if, its Value is =/> than 0.80] and respective Beta Value. In the falling {bear phase} the MF Scheme having the least Beta Value be given preference & vice versa.
13) Finalize the MF Schemes in each group of different Fund Category separately and prepare only one consolidated list for suggesting to the prospective Clients which is useful for churning the existing portfolio / making fresh investments. This is useful for Fund Managers of FoF Schemes also for the same purpose.
The above entire exercise is based on the information / data available on web site itself www.valueresearchonline.com and I have made a humble attempt in my own way, with certain assumptions which are subject to further brain storming please! And while doing so, I have not taken in to consideration certain subjective / debatable criteria / parameters like Fund Size (AUM), Track Record of Fund Manager / Fund House, % Exposure of the MF Scheme in a particular Industry/ies, Entry \ Exit Loads, Expense Ratio etc…Hence, the entire exercise is purely a statistical / mechanical model based, on the past track record of the respective MF Schemes.
This exercise can preferably be done every month as soon as the said web site is updated at monthly intervals. As per my experience, it gets updated very quickly, immediately after the month end, for which the VRonline team deserves a special appreciation. Now. I would like to request the VRonline team to provide on the web site the aforesaid relevant statistical data i.e. SR ,SD, Alfa, R’Square and Beta for doing the above exercise in respect of all the open ended Diversified Equity MF Schemes and also for all open ended ELSS MF Schemes irrespective of their age of existence and / or rating.
I, now welcome the experienced & knowledgeable readers to deliberate on the contents of the above theory in a most desirable manner.
THANKS!
Prakash P. Joshi.
AMFI Regd. ARN 54820
E-mail:--- ppj_2001@yahoo.com
Vile Parle (East), Mumbai 400 057
Cell No. +9199203 34762
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