Below is the verbatim transcript of Rustagi's interview with CNBC-TV18.
Q: What are the parameters via which an investor can assess the performance of an asset class?
A: As an investor everyone wants good performance from a portfolio, but to figure out whether it is happening or not, can be tricky, for example many investors get disillusioned by looking at negative return in their equity portfolio and often equate it with poor performance. However, the fact is that negative performance in equity portfolio does not necessarily mean poor performance even the best of the fund manager will give negative return during significant downturn in the market.
Similarly even a mediocre fund manager will give fantastic return when the market is doing well. So, it is very important for investor to realise that he need to look at long-term performance and not to base investment decision on short-term performance. The right way to assess a performance is to compare it with the benchmark. However, we know that investor has different asset classes in portfolio like gold, equity and debt.
Mutual funds have different options to allow investors to invest in these asset classes and the fact is that each of the mutual fund scheme has a benchmark, for example for equity fund the benchmark could be an index like CNX 50, 100 or 500, for debt funds there are indices like Crisil Composite Bond Index or Crisil Composite Short-Term Bond Index or Isec, Si-Bex. These are the indices which are there for debt funds, in fact for a common investor the benchmark could be the return that they get from fixed deposit, bonds and debentures and for gold savings scheme the benchmark is the price of physical gold.
Apart from comparing the performance with the benchmark it is equally important to compare performance with the peer group, which is funds in the same group, of course one has to be little careful about selecting the funds in the peer group and it is important because many a times as a category, as a group these funds can tend to outperform or underperform a particular benchmark, for example if the benchmark has risen by 6-7 percent and the category average is 10 percent, any fund which has given a return of 6-7 percent has underperformed the peer group. Therefore, it is important to compare the performance with the benchmark as well as the peer group.
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