Sometimes when you see a mutual fund that has given very high returns you figure I want to buy mutual funds like this. Two funds gave 30%+ returns in last 5 years as on 27th Jan 2017. You wish you had a portfolio of these two funds.

But when you look at the returns you need to look at risk also.

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Below, the chart of these fund along with Sensex.


Above chart clearly shows that both funds have gone down much more that Sensex in 2008 and 2011. That shows they are more risky than Sensex.

One thing that we should learn from this is that high returns only come at cost of higher risk. So if you want high returns then be ready for high risk as well.

Also, when you are dealing with high risk it’s very important to try to reduce the risk. One time-tested way to do that is by creating a portfolio of high returns mutual funds.

Model Portfolio for High Returns:

Fund Weightage
DSP BlackRock Micro Cap Fund 40%
Franklin India Smaller Companies Fund 30%
Mirae Emerging BlueChip Fund 30%

So, I have chosen three top mutual funds which provided high returns in last 5 years. I am taking sector funds as they need to be rebalanced whenever there is a change in the market dynamic of the sector.

To decide the weights, I used modern portfolio theory with the objective of maximizing the sharpe ratio.

You can expect returns more than 20% over next 5 years if lucky can also get above 30%.

You can create your own portfolio of ‘High Returns’ funds. Another way to build a portfolio is to look at sector funds and try predict which sector is going to perform in this year.

Happy Investing!