There are no Best Mutual Fund Schemes


The most common misconception when it comes to investing in mutual funds by a retail investor is chasing the ‘best mutual funds’ which ironically is also the major reason for falling investor returns.

There is no such thing as the best mutual fund scheme and if you are in pursuit of one then it is imperative you cut your losses as soon as possible.


Often in the pursuit of the ‘best mutual funds’ investors end up with an extremely large number of mutual fund schemes.

best mutual funds to invest

The Search for best schemes



If an investor does not invest in a particular mutual fund scheme that has been doing well recently, he will feel as if he is missing out on something special.

He feels as if he’s making a mistake and others are on the right since they are investing in the fund that has been doing well recently.

This realization becomes a habitual process which results in an over bloated mutual fund portfolio since no one fund remains at the number one spot at all times.

Investing in such a case is directed more by fear rather than a goal in mind.

Additional reading: Click Here to read whether you should invest directly in stocks or equity mutual funds

Regulatory Changes

Any new regulation change will have a direct impact on how you invest.

For eg. At times a fund may stop accepting fresh investments if the fund has grown in size.

At the beginning of 2022, international funds had to stop accepting fresh investments due to a directive by RBI & SEBI.

In such cases an investor who was already investing in such schemes via any mode will need to rearrange his plans.

He will therefore need to look at other mutual fund schemes for fresh investments which will add to the number of mutual fund holdings.


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Lure of Exotic Funds

Historically most mutual fund schemes have been launched when the market has been on the up since it is easier to sell.

The same line of thought can be applied while trying to dissect why thematic/sectoral mutual fund schemes are launched when a particular theme/sector is doing well.

Prior to the market crash of 2020, interest in international mutual fund schemes was negligible.

Post the market crash when international markets were doing better than the Indian markets is when interest suddenly piqued in international funds which can be ascertained by the launch dates of most international mutual fund schemes.

International Funds launched from 1st April 2020 to 31st January 2022

Motilal Oswal S&P 500 Index

Axis Global Equity Alpha FoF

Invesco India Invesco Global Consumer Trends FoF

Kotak International REIT FoF

Kotak Nasdaq 100 FoF

Axis Greater China Equity FoF

HSBC Global Equity Climate Change FoF

SBI International Access – Us Equity FoF

Mirae Asset NYSE FANG +ETF

BNP Paribas Funds Aqua FoF

Axis Global Innovation FoF

Kotak Global Innovation FoF

IDFC US Equity FoF

Mirae Asset S&P 500 Top 50 FoF

HDFC Developed World Indexes

ICICI Pru Nasdaq 100 Index

Mahindra Manulife Asis Pacific Reits FoF

Aditya Birla SL Nasdaq 100 FoF

Motilal Oswal MSCI Top 100 Select Index

PGIM India Global Select Real Estate Securities FoF

Mirae Asset Hang Seng Tech ETF

Nippon India Taiwan Equity

Motilal Oswal Nasdaq Q 50 ETF

ICICI Pru Strategic Metal & Energy Equity FoF

What is even more fascinating is those that began investing in international mutual fund schemes with the intent of diversification were in fact investing only in a particular country or theme which goes against the very idea of diversification.

A similar case can be made of IT mutual fund schemes.

During such a phase most investors feel left out if they are not complying with the ongoing trend and end up investing in mutual fund schemes they do not necessarily require.


Having no Goal

Having a goal/goals is paramount when investing in mutual funds, in fact it should be the first thing on your mind prior to investing in mutual funds.

If you have a goal, you will make a plan to achieve that goal which will require additional inputs in the form of ascertaining the amount required to be invested, time period, keeping aside an emergency fund, etc.

When you have no goal, your investing journey is all over the place since there is no end in sight.

You end up listening to various sources in the search of ‘best mutual fund schemes’ and end up buying and selling as if you are a short term trader.

These sources could be anyone from your neighbour,relative,family member or some online stranger with no professional experience of mutual funds.

If you have a goal, then you will most likely have a mentor or a guide assisting you along the way.


Additional reading: Click Here to read more about Infrastructure mutual funds

Issues arising in pursuit of Best mutual fund schemes

Illusion of Diversification

When you invest in too many schemes without any thought process, inadvertently you end up investing in the same set of stocks and style via different schemes.

This gives you the illusion of diversification.

The illusion of diversification can be an extremely serious mess to get out of cause it is difficult to solve a problem if you are unaware the problem exists in the first place.

The very point of active investing is defeated since your mutual fund portfolio ends up performing like an index.


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Tracking Error

A large mutual fund portfolio be it in terms of the amount or the number of schemes is not by default a problem.

It becomes one though when you are unable to track it on a quarterly basis at least.

This could range anywhere from looking out for changes in portfolio, style, fund manager, category, merger, etc.

Tracking the changes does not mean you need to act on those changes, you just need to be aware the impact of those changes on your portfolio.

As an investor it becomes a herculean task once your portfolio grows in size and you do not have a professional managing it.


Accumulating thematic funds

In the pursuit of the best mutual funds, you would end up accumulating a large number of thematic funds.

This is because thematic funds tend to be cyclical in nature.

For eg. For a year after the onset of the first corona wave, both IT as well as the Pharmaceutical sector funds were topping the chart.

Prior to this though, they were lagging by a good margin to the sector which was giving the highest returns.

A year later to the first wave, both sector funds were no more at the top.

This is because every sector goes through various cycles so if you keep on investing in the best fund, you will end up accumulating a large number of thematic funds because no one sector remains at the top consistently.

The law of averages eventually has the last laugh.

A mutual fund portfolio that is large in size does not by default become an issue.

It is only an issue when you are unable to manage it, track it, it is not well diversified or it has not been aligned to your long term goals.

Your mutual fund portfolio should not necessarily consist of the best mutual fund schemes, rather it should be focused on having a well-diversified strategy that is aligned with your long term goals.

It is not possible for all the schemes in the portfolio to always be at the top, what is important is that the overall returns are on par with your long term goals.

The process should be far more desirable than the want of returns since the former takes care of the latter.

Do not waste your precious time in the pursuit of the best mutual fund schemes, there are none.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
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