How should one compare the performance of two schemes?

How should one compare the performance of two schemes? zoom-icon
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Mutual Funds Sahi Hai?

If two students pass class X board exam with 95% from two different boards (CBSE and ICSE), whom would you consider a better performer? The one who scored 95% from CBSE board or the one from ICSE? You obviously can’t compare their scores since they had different syllabus, question paper pattern and evaluation system. It would be like comparing biryani to pulao.

The same goes with performance comparison of two Mutual Fund schemes. When you compare two schemes, remember to do a biryani to biryani comparison. Schemes from the same category having similar investment objective, asset allocation and tracking the same benchmark index must be compared. Just like the two students had different syllabus leading to different question paper pattern, schemes may have different asset allocation which will result in different portfolios. But when you compare two schemes following the same benchmark it is like comparing the performance of two students who appeared for the same board exam, be it CBSE or ICSE. It is fine to compare two bluechip funds or two small cap funds, but you shouldn’t compare the performance of a bluechip fund to that of a small cap fund even if both are equity schemes. Both have different investment objective and benchmark. They are meant to perform differently.

 

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