How mutual funds hide bad performance and What are the good mutual funds for Muslims?

Mutual fund performance stats trick us by showing the annualized returns which appear great when the markets are high. However we should always look at Absolute returns for each complete year. Data like this is available on sites like moneycontrol.com and many other sites. Also calculate average absolute return by averaging the absolute returns of previous years.

another way to measure the performance is to compare from the benchmark. The fund should give usually higher returns every year as compared to the benchmark. The fund manager can not hide his performance as compared to benchmark. There are some mutual funds which do not have a benchmark. Avoid them.


Examples:

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Example 1

Below is data for Tata Ethical Fund .

Benchmark: CNX 500

Absolute Returns (in %)
YearQtr 1Qtr 2Qtr 3Qtr 4Annual
20144.815.2---
2013-2.62.22.811.115.9
201212.9-4.711.02.725.8
2011-7.70.9-7.4-4.0-17.3
20103.21.812.4-1.218.7
20090.742.926.9-0.2101.7

Its better to ignore returns in 2009 as the markets recovered from a great fall. so average of absolute returns from 2010 to 2013 is 10.775% for the above fund which is not a good rate.

Source http://www.moneycontrol.com/mutual-funds/nav/tata-ethical-fund/MTA010
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Example 2


Below is data for UTI Transportation and Logistics Fund which gave very good returns.
Absolute Returns (in %)




 ( Benchmark: None)


YearQtr 1Qtr 2Qtr 3Qtr 4Annual
201415.333.7---
2013-11.43.61.528.623.8
201224.3-3.38.14.438.8
2011-10.1-0.4-3.6-8.7-20.6
20101.56.916.9-4.623.6

Source http://www.moneycontrol.com/mutual-funds/nav/uti-transportation-and-logistics-fund/MUT066



Its better to ignore returns in 2009 as the markets recovered from a great fall. so average of absolute returns from 2010 to 2013 is 21.75 % for the above fund.



Similarly ICICI Prudential Technology Fund the average  returns are 25.7% ( Benchmark: S&P BSE TECK)

The above mentioned funds invest in companies which dont do haram business as per Islamic law. There are some sharia compliant criteria on which BSE sharia index selects a stock but the above funds except Tata ethical fund do not satisfy them fully. But I believe that the balance sheet and the cash flow is not very transparent for most companies so we can invest in companies which dont do any haram business.

Better to put monthly Rs1000 to Rs5000 in multiple funds given above. Average return will come at more than 20%. Beware of fund manager change as the performance will get affected. Fund manager name can be seen on moneycontrol page of each of the funds. But this is a small effort for a good return.


To take full advantage of the performance and to minimize risk, Sytematic withdrawl (SWP)and Systematic investment (SIP)are recommended. In essence, SWP is the reverse of SIP. Where in SIP you look at accumulating a corpus by making regular investments into a fund, in SWP you regularly withdraw a fixed amount of money from a fund. The amount to be withdrawn and the frequency is fixed by the investor. So you can have a monthly, quarterly or annual frequency for any fixed amount that you wish to receive. Read more at:http://www.moneycontrol.com/news/mf-experts/-understanding-systematic-withdrawal-plans_830789.html?utm_source=ref_article

Sytematic withdrawl request can be seen on page 2 of this form:http://www.tatamutualfund.com/docs/sip-swp-stp-forms/sip-swp-form-for-all-schemes-except-tata-retirement-saving-fund


A Systematic Investment Plan helps you invest a fixed amount regularly at a specified frequency say, monthly or quarterly. SIP is a simple method of investing used across the world. So, what are you waiting for? Start a Tata SIP today in our range of schemes from as low as Rs. 500/- per month. Read more: http://www.tatamutualfund.com/investor/buying-our-funds/ways-to-invest/systematic-investment-plan


performance and other details:

http://www.moneycontrol.com/mutual-funds/nav/tata-ethical-fund/MTA010

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