Manufacturing mutual funds: Top scheme delivered over 23% in 1 year—did this stellar return come with higher risk?

Thematic mutual funds invest in companies linked to a particular theme. Under SEBI’s rules, a thematic fund must invest at least 80% of its total assets in stocks of that theme.

Manufacturing is one such theme, giving investors exposure to companies that could benefit from growth in India’s manufacturing activity.

Over the last 1 year, the Nifty India Manufacturing TRI has delivered 6.97% returns. For investors, the key questions are whether actively managed manufacturing funds have outperformed the index tracking the same theme and whether they have done so with lower risk.

The numbers show a wide gap between the benchmark and the five funds over 1 year period.

ABSL Manufacturing Equity Fund delivered the highest return at 23.61%, followed by Kotak Manufacture in India Fund at 18%.

LIC MF Manufacturing Fund delivered 16.31%, while Invesco India Manufacturing Fund and Axis India Manufacturing Fund returned 15.60% and 15.47%, respectively. In comparison, the Nifty India Manufacturing TRI returned 6.97%.

All five thematic funds have outperformed the benchmark, highlighting the role that active stock selection and portfolio allocation can play in delivering better returns than the broader market theme.

Did these manufacturing funds deliver higher returns with lower volatility?

Returns alone do not show how much a fund’s performance fluctuated while generating those returns. Standard deviation is a commonly used measure of this volatility. A higher standard deviation indicates that returns have fluctuated more over the period, while a lower figure suggests relatively lower volatility.

For example, if Fund A and Fund B both deliver 14% annualised returns, but Fund A has a standard deviation of 12% and Fund B has 6%, Fund B’s returns have been less volatile over the period.

In general, a higher standard deviation indicates higher volatility, which means investors have experienced wider fluctuations in returns and face a higher risk.

The manufacturing fund category has an average standard deviation of 18.15%, while the Nifty India Manufacturing Index has a standard deviation of around 15%.

Among the five funds being compared, standard deviation data is available for only two. ABSL Manufacturing Equity Fund has a standard deviation of 17.82%, while Kotak Manufacture in India Fund has 17.05%.

These funds delivered higher returns, while their volatility was lower than the category average, both of which are positive for investors. However, their volatility was slightly higher than that of the benchmark.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.