I proposed how a point in time comparison of CAGR across mutual funds may not give much information. Yesterday, we saw how the CAGR return distribution of 3 year, 5 year and 7 year in the same fund fared against each other. Today we take a specific set of 3 funds - no recommendation - the funds have been in operation for a longer period of time. UTI Equity Fund, Birla Sunlife Frontline Equity Fund, Franklin India Bluechip fund. For these funds, 3 year lump sum investment CAGR is calculated for 7 years. For investments from Apr 2006 to Apr 2013. So, the total number of data points would be around 250 * 7 = 1750 individual lumpsum investments.
A cumulative distribution plot is generated for the 3 funds which look like below:
Median return of BSL Frontline is better than UTI Equity which in turn is better than Franklin India Bluechip. And if you look at y=0.25 line (at 25%), we get that 75% of returns are upwards of 9% in UTI Equity and upwards of 8% in the other 2 funds. Take the y=0.75 line, 25% chances that the returns are around 16% in Franklin India Bluechip and around 20% in the other two funds.
To view in terms of returns, for a 15% or above return, BSL Frontline has a 45% chance (1 - 0.55) and 38% chance with UTI Equity, 33% chance with Franklin India Bluechip.
In general, the curve on the right is better - for the same return you get a better probability. In a real scenario, we would never get these lines running parallel, so you can choose the one on the right most!
A cumulative distribution plot is generated for the 3 funds which look like below:
Median return of BSL Frontline is better than UTI Equity which in turn is better than Franklin India Bluechip. And if you look at y=0.25 line (at 25%), we get that 75% of returns are upwards of 9% in UTI Equity and upwards of 8% in the other 2 funds. Take the y=0.75 line, 25% chances that the returns are around 16% in Franklin India Bluechip and around 20% in the other two funds.
To view in terms of returns, for a 15% or above return, BSL Frontline has a 45% chance (1 - 0.55) and 38% chance with UTI Equity, 33% chance with Franklin India Bluechip.
In general, the curve on the right is better - for the same return you get a better probability. In a real scenario, we would never get these lines running parallel, so you can choose the one on the right most!
No comments:
Post a Comment