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Every investor must ask this question when making an investment.
The higher the risk you take with your money, the greater the chance of higher returns. The lower the risk, the lower the return.
Hence, do not get misled by high returns. You could also end up losing all your money.
That is why equity (shares) rates high on the risk factor compared to other investments, like post office saving schemes, fixed deposits and bonds. The returns can be phenomenal. So are the chances of you losing your money.
How risky is your mutual fund? Check out the ratings given by mutual fund research outfit Value Research.
How the funds are rated
Here is a quick and easy way to identify mutual funds that have produced strong risk-adjusted performances vis-a-vis their peers.
The funds with a 5-star rating are the best. Those with a 1-star rating are the worst.
Note: Best does not indicate the highest return when compared with the rest. It means you will get a good return without putting your money at too much risk.
How the rating is done
A fund's return for each month is taken since the day it is launched.
This return is compared to other 'riskless' investments, like government investments, which have no risk per se. This means funds do not rate very high if they give phenomenal returns, but have taken tremendous risks to do so.
Only funds with a minimum performance history of three years are considered.
Diversified equity funds are those that invest in the shares of various companies of various sectors.
Here are the funds that offer the best returns when the risk factor is taken into account.
| 1-year return (%) | Return since launch (%) |
Alliance Basic Industries | 48.60 | 28.66 |
Franklin India Prima | 80.65 | 25.08 |
HDFC [Get Quote] Equity | 64.49 | 21.80 |
Magnum Contra | 100.82 | 30.41 |
Reliance [Get Quote] Growth | 97.81 | 31.81 |
Reliance Vision | 63.79 | 26.39 |
The top 5-star tax planning funds
These are diversified equity funds that have the tax benefit under Section 80C.
| 1-year return (%) | Return since launch (%) |
Birla Taxplan '98 | 73.24 | 40.68 |
HDFC Long Term Advantage | 72.43 | 46.82 |
HDFC Taxsaver | 106.21 | 43.35 |
AMCs that have the most 5-star funds
AMC | 1-star | 2-star | 3-star | 4-star | 5-star |
HDFC | 2 | 9 | 10 | 5 | 6 |
Franklin Templeton | 4 | 3 | 9 | 9 | 4 |
Kotak Mahindra | - | 3 | 4 | 2 | 4 |
Reliance | - | 3 | 1 | 3 | 4 |
Prudential ICICI [Get Quote] | 1 | 3 | 7 | 6 | 3 |
J M Mutual Fund | 1 | 4 | 1 | 3 | 2 |
Prudential ICICI | 1 | 2 | 8 | 5 | 2 |
UTI Mutual Fund | - | 10 | 12 | 7 | 3 |
Alliance Capital | 1 | - | 9 | 1 | 1 |
BoB | 2 | - | 2 | 1 | 1 |
Canbank | 1 | 2 | 2 | 2 | 1 |
DSP ML | - | - | 5 | 3 | 1 |
Escorts | - | 2 | 3 | - | 1 |
J M | 1 | 4 | 1 | 5 | 1 |
LIC [Get Quote] | 3 | 4 | 3 | - | 1 |
Sahara | 1 | 2 | 1 | - | 1 |
SBI [Get Quote] | 4 | 5 | 7 | 2 | 1 |
Remember, it is not always about the return. The risk you are putting your money into plays an important role.
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).
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