checking mutual fund performance with filter

 

https://www.indmoney.com/mutual-funds/equity/small-cap-funds

I have identified, mf schemes , holding are (equity, tbills, features, mutual fund), explain these and others, they hold around 89 holding differene, how to check performance having this holdings?

ChatGPT said:

To evaluate the performance of mutual funds with diverse holdings (equity, treasury bills, futures, other mutual funds, etc.), you need to understand the characteristics of these asset types and how they contribute to the fund's performance. Here's a breakdown and approach to assess their performance:

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Understanding the Asset Classes

1. Equity Holdings

   • Represents ownership in companies.
   • Performance depends on stock price appreciation, dividends, and the sector/market trends.
   • High-risk, high-return potential.

2. Treasury Bills (T-Bills)

   • Short-term government debt instruments.
   • Low risk, but limited returns.
   • Acts as a stabilizer in the portfolio, providing liquidity and safety.

3. Futures

   • Derivatives contracts obligating the holder to buy or sell an asset at a predetermined price in the future.
   • Used for hedging risk or speculation.
   • Can introduce volatility due to leverage and market fluctuations.

4. Other Mutual Funds

   • Investment in units of other funds (often called Fund-of-Funds).
   • Provides diversification but may have additional expense ratios.
   • Performance depends on the underlying funds' returns.

5. Other Instruments (if applicable)

   • Corporate Bonds: Provides fixed returns with moderate risk.
   • Cash & Cash Equivalents: Maintains liquidity but has minimal return.
   • Commodities/Gold ETFs: Used as inflation hedges.

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Approach to Check Performance

1. Identify the Weightage of Each Asset Class

   • Check the percentage allocation to equity, T-bills, futures, etc.
   • Funds with higher equity allocation may have higher returns but are riskier.
   • T-bills and cash reduce risk but might drag down returns.

2. Evaluate Equity Performance

   • Analyze the performance of equity holdings using tools like Morningstar, Moneycontrol, or Value Research.
   • Look for top-performing stocks/sectors within the fund.
   • Check historical returns of equities held in the portfolio.

3. Assess Debt Instruments (T-Bills and Bonds)

   • Compare the returns of T-bills and bonds to benchmark indices like Treasury indices or fixed-income indices.
   • Ensure the fund is optimizing safety and return.

4. Review Futures and Derivatives Impact

   • Check the fund's annual report or fact sheet for the strategy behind futures.
   • Determine whether derivatives are used for hedging or speculative purposes.
   • Assess the net impact (profit/loss) from futures contracts.

5. Analyze Fund-of-Funds Performance

   • Evaluate the underlying funds' performance.
   • Consider the additional expense ratio of the Fund-of-Funds.

6. Compare with Benchmarks and Peer Funds

   • Use the fund's benchmark index to measure relative performance.
   • Compare returns against similar funds in the same category.

7. Risk-Adjusted Performance Metrics

   • Use measures like Sharpe Ratio, Alpha, and Beta to evaluate returns relative to risk.
   • Sharpe Ratio: Higher is better (reward per unit of risk).
   • Alpha: Positive indicates outperformance against the benchmark.
   • Beta: Indicates the fund's sensitivity to market movements (lower Beta for conservative funds).

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Tools and Resources

• Mutual Fund Fact Sheets: Available on fund house websites.
• Portfolio Tracker Tools: Apps like Zerodha Coin, Groww, Value Research, and Morningstar.
• Financial Websites: Moneycontrol, Economic Times, or Bloomberg for in-depth analysis.
• Performance Reports: Annual and semi-annual reports published by the mutual fund.

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Steps to Analyze 89 Holdings

1. Download the fund's latest holdings (often available as a PDF or Excel file on the AMC's website).
2. Use Excel to categorize holdings by type (equity, T-bills, etc.).
3. Compute weightage (%) of each holding.
4. Check individual performance (returns) for each equity or debt instrument.
5. Calculate the weighted average return of the portfolio to estimate overall performance.

Would you like help with creating an Excel-based performance tracker or more details on using any specific tool?

You said:

mutual fund has performance 1y, 3y, 5y and return and also expensece ratio, number of holding, alpha, beta, sharperatio,? selecting rule with simple excel sheet, for 5 top performing small cap mutual funds?

ChatGPT said:

To identify the top 5 performing small-cap mutual funds using a simple Excel sheet, you can follow these steps to create a ranking system based on key metrics like returns, expense ratio, alpha, beta, and Sharpe ratio. Here's how:

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Step 1: Gather Data

Collect the following metrics for small-cap mutual funds (available on platforms like Morningstar, Value Research, or AMC websites):

• 1-Year, 3-Year, and 5-Year Returns (%): Past performance data.
• Expense Ratio (%): Lower is better.
• Number of Holdings: Indicates diversification; compare within a reasonable range.
• Alpha: Measures outperformance over the benchmark; higher is better.
• Beta: Indicates volatility; Beta < 1 is less volatile than the market.
• Sharpe Ratio: Measures risk-adjusted returns; higher is better.

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Step 2: Create an Excel Sheet

1. Open Excel and create the following columns:

   • Fund Name
   • 1-Year Return
   • 3-Year Return
   • 5-Year Return
   • Expense Ratio
   • Number of Holdings
   • Alpha
   • Beta
   • Sharpe Ratio
   • Score (calculated based on weighted criteria).

2. Fill in the collected data for each fund.

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Step 3: Apply Selection Rules

Use a scoring system to rank the funds. Assign weights to each metric based on its importance:

• 1-Year Return (15%)
• 3-Year Return (20%)
• 5-Year Return (25%)
• Expense Ratio (15%)
• Alpha (15%)
• Beta (5%)
• Sharpe Ratio (5%)

Formula for Score:

$$\text{Score} = \left(1Y\_Return \times 0.15\right) + \left(3Y\_Return \times 0.20\right) + \left(5Y\_Return \times 0.25\right) + \left(\frac{\text{Alpha}}{\max(\text{Alpha})} \times 0.15\right) + \left(\frac{\text{Sharpe\ Ratio}}{\max(\text{Sharpe\ Ratio})} \times 0.05\right) - \left(\text{Expense Ratio} \times 0.15\right) - \left(\text{Beta} \times 0.05\right)$$

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Step 4: Implement in Excel

1. Enter the formula in the "Score" column for each fund.
2. Use Excel functions like MAX() and MIN() for normalization (e.g., for Alpha and Sharpe Ratio).
   • Example for normalized Alpha:

     sql
     = (Alpha / MAX(Alpha Range)) * 15
     

   • For normalized Sharpe Ratio:

     sql
     = (Sharpe Ratio / MAX(Sharpe Ratio Range)) * 5
     

3. Sort the funds by the "Score" column in descending order to get the top 5 funds.

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Sample Data in Excel

Fund Name	1Y Return (%)	3Y Return (%)	5Y Return (%)	Expense Ratio (%)	Holdings	Alpha	Beta	Sharpe Ratio	Score
Fund A	18.5	23.7	26.4	1.2	45	4.5	0.95	1.3	89.7
Fund B	20.1	21.9	24.8	1.1	38	5.2	1.1	1.1	87.3
Fund C	19.3	22.5	25.5	1.3	50	4.8	0.9	1.5	88.2

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Step 5: Choose Top 5 Funds

After sorting, select the top 5 funds with the highest scores. These are your best-performing small-cap mutual funds based on risk-adjusted and absolute returns.