How Goalwise selects the best Mutual Funds and keeps you invested in them


At Goalwise, one of our aims is to generate above-market returns for our investors. This means coming up with a list of 3-4 best Mutual Funds out of the thousands available.

And not just once. The list needs to be constantly updated in a reasonable time frame - say once or twice every year. The best mutual fund today may not be the best mutual fund for the next year.

A lot of websites and publications maintain such a list or at least a rating. So what is different about Goalwise?

Two things:

  • Proof that the selection works (or has been working so far)

  • Auto-switching of your investments from old list to new list on every update

Let us look at both one by one:

1. Goalwise Mutual Fund Selection vs Sensex Returns

As I mentioned above, a lot of websites and publications publish a list or at least a rating of best Mutual Funds. And usually there is a good sensible story behind the selection process - look for consistency in returns, high alpha over benchmark, avoid funds with high volatility and high fees etc etc. It all seems to make sense on the face of it.

But almost all of them fall short of the most basic requirement - they never tell you how their selection would have fared over time. They never tell you how much one would have made (or lost) following their strategy over time. Without this information, how do we even know whether their method works and is better than just randomly selecting funds? We don't. All that glitters is not gold, especially in investing.

At Goalwise, we look for data and not stories while making investment decisions. And hence, we use selection strategies that have actually worked over time in a testable demonstrable way. Nothing can be guaranteed to work in the future but it helps to know that it has worked so far. This is the minimum we can do.

So how have Goalwise selection strategies actually done over time? Here is a chart that shows the growth of Rs 100 since 2004 in the Sensex, in an average Mutual Fund and in Goalwise selected Mutual Funds.

Rs 100 invested in Sensex despite the crash of 2008 becomes a respectable 452 i.e. about 4.5 times in 12 years implying an impressive CAGR (annualized return) of 13.4%. To compare, an FD of Rs 100 done at 8% in 2004 would have amounted to only Rs 252 that too before taxes. It is a pity that so many people still prefer to shun away from investing in the stock markets and prefer FDs.

Investing in an average Mutual Fund gives results similar to Sensex, except in the recent years where there has been significant outperformance (this also begs the question who were the losers but that is for a later post). Rs 100 invested in an average diversified equity Mutual Fund selected at random would have amounted to approx Rs 572 implying a CAGR of 15.6% - more than twice that of FD and impressive by all accounts.

That was for a random Mutual Fund selection. What happens when you do some good research and stick to a systematic process? The funds selected by Goalwise's selection system would have taken that Rs 100 in 2004 and grown it to an astounding Rs. 984 ... almost 10 times in about 12 years - an annualized growth rate of 20%! This is a 6-7% annual improvement over the Sensex - not once but 6-7% extra every year on average.

I don't know if the future will hold similar returns for Sensex or Goalwise. No one does. At Goalwise we believe in being conservative in our assumptions. In our projections we take a conservative number of 12 % growth for equity (stock markets) and 7% for debt (think FD). We would rather be surprised on the positive side than fall short of our goals. But knowing that our and our investors' money is being invested in the best Mutual Funds according to a well researched process is what makes us different from others.

Now let us turn to the other big way in which we are different.

2. Auto-switching of your investments from old list to new list

So far we saw how Goalwise has well-researched evidence-based algorithms to select the best Mutual Funds for our investors. But merely having such a list of the best funds is only half of the story.

One also needs to act on it. This may sound trivial but is actually even more important in some sense.

How many of us have ever followed a selection criteria strictly? Do we get out of funds that have stopped satisfying the criteria based on which we initially picked them? Or do we just let them be out of pure laziness or some other behavioural bias?

Do we keep using the same criteria to select new funds or do we add funds in an ad-hoc way, based on our friend's recommendations or giving into the popular fad of the day?

For many, their portfolio becomes a random assortment of un-coordinated Mutual Funds accumulated over years and held on to without much thought. As the difference between Goalwise and random Mutual Fund selection shows, by doing this we might be losing as much as about 5% every year! This can be the difference between retiring at 50 vs retiring at 65.

Hence it is important to automate this process of eliminating funds that have fallen off the list and move your money into the fresh names. This is what we do for all our investors at Goalwise. We shift your money from Mutual Funds going out of the list and shift it to the more promising ones coming in, automatically. We keep you invested in the best Mutual Funds always, without you having to run after us. It is a true 'set and forget' system.

We want to have our cake and eat it too. Have you signed up yet? :)