Does it make sense to chase mutual fund toppers?

Everyone wants to invest in top-performing mutual funds. Some investors keep adding a top-performing tax-saving scheme or ELSS to their portfolio almost every year to save taxes under Section 80C. As a result, they end up accumulating 10-12 or even higher number of tax-saving schemes in their portfolio. The problem is not limited to ELSS investors. Many investors look at only the one-year return and choose the toppers in the category to invest.

If you follow a similar strategy to choose schemes, ETMutualFunds.com has bad news for you. We did some number crunching to find out the churn among toppers in some categories: We looked at ELSS or tax-saving funds category, multicap mutual funds category and short duration funds category for our study. We checked the annual returns of the schemes in these three categories for the last five years. The results proved that the mutual fund toppers in one year can be totally different from the toppers in the next year.

So soon..! Yes, the mutual funds toppers could not even retain their respective positions in the next year. You can check the category toppers in the table given below and figure out the change yourself. We have listed top five schemes in all the five years for the three categories mentioned above.

2018	2017	2016	2015	2014
Multicap funds
Axis Multicap Fund	Principal Multi Cap Growth Fund	Aditya Birla Sun Life Equity Fund	Motilal Oswal Multicap 35 Fund	Invesco India Multicap Fund
UTI Equity Fund	Edelweiss Multi Cap Fund	JM Multicap Fund	Quant Active Fund	Quant Active Fund
Canara Robeco Equity Diversified Fund	Invesco India Multicap Fund	ICICI Prudential Multicap Fund	SBI Magnum Multicap Fund	Reliance Multi Cap Fund
ICICI Prudential Multicap Fund	Motilal Oswal Multicap 35 Fund	Kotak Standard Multicap Fund	Parag Parikh Long Term Equity Fund	IDFC Multi Cap Fund
Parag Parikh Long Term Equity Fund	BNP Paribas Multi Cap Fund	Motilal Oswal Multicap 35 Fund	IDFC Multi Cap Fund	Kotak Standard Multicap Fund
Tax-saving funds or ELSS
Canara Robeco Equity Tax Saver Fund	BOI AXA Tax Advantage Fund	Mirae Asset Tax Saver Fund	Tata India Tax Savings Fund	Reliance Tax Saver (ELSS) Fund
Axis Long Term Equity Fund	IDFC Tax Advantage (ELSS) Fund	Quant Tax Plan	Quant Tax Plan	IDBI Equity Advantage Fund
ICICI Prudential Long Term Equity Fund (Tax Saving)	Principal Tax Savings Fund	Motilal Oswal Long Term Equity Fund	Aditya Birla Sun Life Tax Relief 96	Axis Long Term Equity Fund
Quantum Tax Saving	Mirae Asset Tax Saver Fund	DSP Tax Saver Fund	BNP Paribas Long Term Equity Fund	Quant Tax Plan
Taurus Tax Shield Fund	Reliance Tax Saver (ELSS) Fund	L&T Tax Advantage Fund	IDFC Tax Advantage (ELSS) Fund	Franklin India Taxshield Fund
Short duration funds
Franklin India Short Term Income Plan	Franklin India Short Term Income Plan	Aditya Birla Sun Life Short Term Opportunities Fund	Indiabulls Short Term Fund	Franklin India Short Term Income Plan
Indiabulls Short Term Fund	Baroda Short Term Bond Fund	ICICI Prudential Short Term Fund	Franklin India Short Term Income Plan	ICICI Prudential Short Term Fund
Baroda Short Term Bond Fund	Canara Robeco Short Duration Fund	BNP Paribas Short Term Fund	BOI AXA Short Term Income Fund	Aditya Birla Sun Life Short Term Opportunities Fund
HDFC Short Term Debt Fund	PGIM India Short Maturity Fund	UTI Short Term Income Fund	HDFC Short Term Debt Fund	Reliance Short Term Fund
BNP Paribas Short Term Fund	HDFC Short Term Debt Fund	BOI AXA Short Term Income Fund	Baroda Short Term Bond Fund	UTI Short Term Income Fund

This simple study proves there is no point of investing on the basis of short-term performance as the toppers might not retain their tag forever. Instead, you must find out the schemes which have fared well in different market conditions in the long term. It will also help you to limit the number of schemes in your portfolio and make it manageable.

Please note that if you are holding any of the schemes mentioned in the tables, you don’t have to worry. If your risk appetite and investment horizon allow you to invest in them, you may continue to invest in them.

The aim of the study is to educate mutual fund investors about the futility of relying entirely on the short-term performance. We are not analysing the performance of any of the schemes in the table. So, do not take any investment decisions on the table.