We have been screaming ourselves hoarse that investors must never buy into a fund simply on the basis of its recent performance. Or, even sell for that matter. And looking at how some of the hot shots of the past have fared and how some of the dogs have risen, we stand vindicated.
The annual return of diversified equity funds in 2007 was 60 per cent. Three funds actually delivered returns in excess of 100 per cent. At that time, equity looked pretty unbeatable. Almost a year down the road (December 8, 2008), and most of these funds are not in sight. In fact, funds which were shunned are the current stars while some of last year's best performers are languishing somewhere down the ladder.
There are as many as 14 equity diversified funds that have landed up in the bottom of the category which were top quartile performers in 2007.
Apart from three funds (UTI Dividend Yield, DSP BR Equity, UTI Opportunities) which managed to maintain their top quartile position in 2008, all other top performers of 2007 are nowhere near to the top.
On the other hand, 15 funds which were fourth quartile performers in 2007 are top quartile ones now.
Moral of the story: Always look at the long-term performance of a fund and how it has fared over various phases in the market. Consistency is more important than recent sporadic bursts or dips.