RETURNS MATTER, BUT DOES YOUR FUND MANAGE THE DOWNSIDE?

Last year, when we came up with the OLM 50 review around the same time, many readers wrote back to us, asking why the top performing funds were not a part of OLM 50, our curated list of well-researched and handpicked mutual funds.

- Kundan Kishore

When it comes to investing, most people are drawn to one key metric: returns. This is quite understandable because higher returns mean faster wealth creation. But the reality is that returns tell only half the story. What often gets overlooked, especially by retail investors, is a fund's ability to manage risk against market downside. In simple terms, the fund manager’s ability to protect the investors’ capital during market downturns.

Here’s an example that a reader highlighted. The one-year return of Quant Mid Cap fund was 71 per cent, but the returns of the mid-cap funds in our list were in the range of 52-60 per cent. Now when we are reviewing our list, on a yearly basis, the average return from OLM 50 mid-cap funds is 19.26 per cent, while Quant Mid Cap has fallen 3.47 per cent. This is why when preparing the OLM 50 list, we do not just look for the best performer, but rather the consistent performer, along with other parameters, one of them being protection against the downside (see Methodology).

Let's understand with another example. Suppose two funds, Fund A and Fund B have net asset values (NAVs) of ₹100 each. Fund A delivers a 50 per cent return in the bull market (bumping up the NAV to ₹150), but loses 40 per cent the next year (eroding the NAV to ₹90). Fund B gains only 20 per cent during the bull run, but loses just 10 per cent next year, bringing the net NAV to ₹108. Clearly, in this case, Fund B has outperformed Fund A.

ACHIEVEMENTS