When you want to buy a car, how do you shortlist the models? Do you first pick up the latest models or decide the type of car? If you are still unsure, you visit a dealer and the first question you are asked is what type of car are you looking for e.g SUV, hatchback, sedan?
The same goes with the performance comparison of Mutual Fund schemes. You can’t compare performance of schemes belonging to different categories. Schemes from the same category having similar investment objective, asset allocation, and same benchmark index must be compared. Just like you can’t compare an SUV with a sedan because of the way both are designed to suit different needs, schemes designed for different investment objectives may be carrying different risk levels. But when you compare two schemes following the same benchmark it is like comparing the performance of two cars designed with the same engine system. 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. Also, within the same category, you should compare performance over the same period just like you shouldn’t compare the mileage of a car running in a city versus that on a highway.
