In a word, scientifically. Our 2018 recommendations are available at

Our goal is to identify funds that are able to deliver sustainable performance across economic cycles and different market conditions. So we set out to design a data-driven predictive model that optimizes the 2-year returns on Equity Funds with minimal volatility. We started with the entire universe of mutual funds and applied a number of filters:

  • We selected only growth options, which are best suited from a tax perspective.
  • We limited our analysis to only diversified equity mutual funds — a mix of Large Cap, Flexi Cap and Mid & Small Cap funds helps investors achieve the required sector diversification, and avoids the volatility that comes with holding sector-specific funds.
  • We then eliminated funds which have been in existence for less than 3 years — we need a track record that the fund can be judged on.
  • To make sure that you can redeem your investments with minimal price impact when needed, we set the minimum size cut-off to Rs 500 crore for Large Cap funds and Rs 150 crore for all other funds.
  • Finally, while we will only recommend direct plans (see why), our analysis is on the regular plans as they have a longer history of data for our algorithm to run on.

Now for the hard work…
We collected all the possible data for these funds and threw this into a big-data statistical computing environment with one goal — to identify the factors that would determine 2-year performance. Our statistical model generated 30 possible factors resulting in more than a million data points.
After several iterations over several weeks (which turned into months), and innumerable cups of black coffee analysing longitudinal trends within the data, we were able to identify a number of factors that would predict 2-year outperformance. We recomputed these factors every two weeks going back in time to the inception of each fund, and back-tested this again, to ensure that the factors work across market cycles. The result is a sophisticated scoring algorithm that enables us to continuously identify optimal funds.