Indian MFs give highest returns

In the medium to long term, Indian mutual funds have rewarded their investors better than any other fund in world. Whether we look at a time period of 10 years, five years or three years, a majority of the ten best performing equity-oriented funds in the world are from India.

Over a 10-year period, Indian funds have grabbed eight of the top 10 ranks. Over the last five years, they account for seven of the top 10 and over a 3-year period, six of the 10 best performing mutual funds are from India. Russian funds are the only non-Indian funds in the top ten over a 10-year or 5-year period, according to a report by Lipper, a leading market research agency. Over 3-year period Russian funds give up the positions to funds from Korea and Norway.

If one takes a short-term view, there is no Indian fund among the top 10 global performers over last year (November 1, 2005 to October 31, 2006). This is despite the fact that the last twelve months have been among the best periods ever for Indian markets , with the sensex rising by 64.2%.

The best performer over the five and ten-year period is Reliance Growth Fund, which has given a compounded annual return of 71.38% and 35.21% respectively against the sensex’s improvement of 34.10% and 15.14% respectively. All returns have been calculated in dollar terms. In rupees terms, this means that if you had invested Rs 1 lakh in Reliance Growth Fund as on October 31, 1996, your investment would have increased by over 20 times to Rs 20.42 lakh. And, if you had invested the same amount in 2001, the amount would have increased by around 15 times to Rs 14.79 lakh.

The other top seven Indian funds in 10 years have also given compounded annual returns of over 30%. In the 5-year period, returns remained in the range of 57-70 %. In the back drop of around 34% and 15% returns from sensex during the 5- and 10-year period, the returns given by Indian mutual funds could be seen as very good, said a merchant banker.

According to the index prepared by Morgan Stanley Capital International (MSCI), over the 10-year period, the Russian market has performed better than India. While MSCI index of Russia improved by 22.29% in the last 10 years, the Indian market index went up by 18.65% per annum compounded annually.

Similarly, there are many markets like Brazil, Argentina, Mexico and Turkey, where returns according to MSCI are better than those for India. Yet, Indian mutual funds have performed much better then their counterparts in other countries.

CEO of an MF (did not want to be quoted) said for long term investment plans, funds avoid investing in momentum stocks which appreciate fast when market goes up but also fall steeply when it falls. So, they invest in stocks which are expected to perform continuously. That is why the long term performance of Indian MFs is good, but in short term it is not spectacular. Besides, he said, in the last one year as everybody was expecting a correction in the market, fund managers invested in those stocks that would not fall sharply with fall of market