Select Equity Mutual Funds which are ‘andar-se-strong’

Last Updated on June 1, 2026

With over 350 equity mutual funds available in India, choosing the right fund can feel overwhelming. Many investors simplify the process by selecting funds that have delivered the highest returns in recent years. While this approach appears logical, it often leads to disappointing outcomes.

Past performance can provide useful information, but it should never be the sole criterion for selecting equity mutual funds. The best-performing fund today may not necessarily be the best-performing fund tomorrow.

Instead of chasing recent winners, investors should focus on identifying equity mutual funds that are fundamentally strong and capable of performing across different market cycles.

Why Past Returns Can Be Misleading

Many investors evaluate mutual funds using trailing returns. This is similar to driving a car while looking only in the rear-view mirror.

A fund’s recent performance depends heavily on the specific time period being measured. A fund that looks exceptional over the last three years may appear average over five years or vice versa.

More importantly, past returns reveal very little about:

The level of risk taken by the fund manager
The quality of stocks held in the portfolio
The sustainability of future performance
The downside risk during market corrections

Funds that top performance charts often do so by taking concentrated bets or investing in riskier segments of the market. While this may boost short-term returns, it can also lead to sharper declines when market conditions change.

Quality of Holdings: The Foundation of Strong Equity Mutual Funds

The first attribute of a strong mutual fund is the quality of the companies it owns.

A mutual fund portfolio is only as good as its underlying holdings. Investors should look beyond the top holdings and assess the overall quality of the portfolio.

Strong equity mutual funds typically avoid excessive exposure to:

Poor-quality businesses
Highly cyclical companies
Companies with weak corporate governance
Turnaround stories with uncertain outcomes
Illiquid stocks

Some funds may appear attractive because of strong recent returns, but a deeper look often reveals that a significant portion of those returns came from taking higher risks.

High-quality portfolios tend to be more resilient during market downturns and provide a smoother investment experience over the long term.

Why Consistency Matters More Than Occasional Outperformance

Investors often get attracted to funds that generate spectacular returns during bull markets. However, wealth creation is rarely about short bursts of performance.

The most successful mutual funds are those that deliver consistent returns across market cycles.

One useful way to evaluate consistency is through rolling returns and rolling alpha.

Unlike point-to-point returns, rolling returns evaluate performance across multiple time periods and market conditions. This helps eliminate the bias created by selecting convenient start and end dates.

A fund with strong rolling returns demonstrates its ability to create wealth consistently rather than relying on a few periods of exceptional performance.

Consistency also reduces the emotional stress associated with investing. Investors are more likely to stay invested in funds that compound steadily rather than swing dramatically between extreme highs and lows.

The Importance of Expense Ratios

Every mutual fund charges a fee for managing investors’ money. This fee, known as the expense ratio, directly impacts investor returns.

While investors should not select funds solely based on low expenses, costs remain an important factor.

As assets under management grow, many active funds find it increasingly difficult to outperform their benchmark indices. In such situations, high expense ratios can further reduce investor returns.

A fund that consistently outperforms its benchmark may justify a higher fee. However, funds that fail to generate meaningful excess returns should ideally maintain lower expenses to remain attractive.

When comparing similar funds, lower costs often translate into better long-term outcomes for investors.

The Three Traits of Strong Equity Mutual Funds

When selecting equity mutual funds, investors should focus on three key attributes:

1. High-Quality Holdings

A portfolio built around financially strong businesses with sound governance and sustainable growth prospects.

2. Consistent Performance

Strong rolling returns and rolling alpha across different market cycles rather than temporary outperformance.

3. Reasonable Costs

Expense ratios that are justified by the value delivered by the fund manager.

Funds that score well on all three parameters are more likely to deliver satisfactory long-term results.

Final Thoughts

Selecting equity mutual funds should never be reduced to chasing the highest recent returns. Short-term performance often hides the true risks within a portfolio.

A better approach is to focus on portfolio quality, consistency of returns, and cost efficiency. These factors provide a much clearer picture of a fund’s ability to create wealth over the long term.

Investors who adopt this disciplined approach are more likely to build portfolios that withstand market volatility and generate sustainable long-term returns.

The strongest equity mutual funds are not necessarily those that shine brightest today. They are the ones that remain strong through both favourable and challenging market conditions.

Moneyworks4me assess equity mutual funds on these parameters and then shortlist the ones that are ‘andar-se-strong’ and hence worth investing in.

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