13.4 Selecting a Scheme Across AMCs or Within a Scheme Category
Key Takeaways
- Once the category is fixed, comparison must be like for like across fund houses.
- Expense ratio is the only comparison factor whose effect is certain in advance.
- Rolling returns reveal consistency far better than a single trailing return.
- Portfolio characteristics such as capitalisation split and rating profile show what risk is actually taken.
- Fund house process, risk management and manager stability matter alongside scheme-level data.
The Comparison Must Be Like for Like
Once the category is decided, every scheme in it faces the same constraints and the same Tier 1 benchmark, which is what makes comparison possible. Three conditions must hold:
- Same category, so mandates are comparable
- Same periods, so market conditions are identical
- Same measure, computed on a total return basis for the benchmark
A comparison violating any of these is not a comparison.
What to Compare
1. Expense ratio — the only certain factor
Cost reduces return every year with certainty, while skill may or may not appear. Within a category, compare the total expense ratio of the same plan type — regular against regular, direct against direct.
Note the change from 1 April 2026: the regulatory cap is now the Base Expense Ratio excluding statutory levies, and Total Expense Ratio is BER plus brokerage plus regulatory and statutory levies. Two schemes with the same BER can present different TERs if one trades far more. Compare BER to understand charging policy; compare TER to understand what the investor bears.
2. Rolling returns rather than trailing returns
A trailing return describes the experience of one investor who happened to start on one day. Rolling returns compute the same window from many overlapping start dates, showing the range and consistency of outcomes.
| Scheme | 5-year trailing | Rolling 3-year: worst | Rolling 3-year: best | Percentage of periods above 12% |
|---|---|---|---|---|
| A | 16.2% | 4.1% | 24.8% | 62% |
| B | 15.8% | 9.6% | 20.3% | 78% |
Scheme A wins on the trailing number. Scheme B is the better holding for most investors — a materially higher floor and greater consistency, which is what determines whether an investor stays invested.
3. Performance against benchmark and peers
Against the Tier 1 benchmark on a TRI basis, over multiple periods, and against category peers, since the category and the benchmark can diverge.
4. Risk-adjusted measures
Sharpe, Treynor, alpha and information ratio, compared within the category over identical periods and over at least three years.
5. Portfolio characteristics
This is where the real differences appear.
| Metric | What it reveals |
|---|---|
| Market-cap split (equity) | Whether a flexi cap scheme is genuinely flexible |
| Number of holdings and top-10 weight | Concentration |
| Sector weights vs benchmark | Active positioning |
| Portfolio turnover | Trading intensity and the cost it imposes |
| Modified duration (debt) | Interest-rate sensitivity |
| Rating profile (debt) | Credit risk actually taken |
| Yield to maturity (debt) | Risk being taken, not return promised |
| Portfolio overlap | Whether a distinct strategy produces a distinct portfolio |
Two schemes with the same category label and similar returns can be running entirely different risks, and only these fields reveal it.
6. Scheme size
Matters differently by category. A very large small cap scheme faces genuine capacity constraints, since building or exiting a position in a less liquid stock moves its price. A very large large cap or index scheme faces no such problem and benefits from lower expense slabs. A very small scheme carries the risk of merger or wind-up.
7. Fund house and manager factors
- Investment process — is there a documented, repeatable process, or does performance depend on one individual?
- Risk management — the credit-event record of the fund house's debt schemes is the most revealing evidence here
- Fund manager tenure and stability, and the manager's record across all schemes managed, which must be disclosed
- Service quality — statements, transaction processing, grievance handling
- Compliance record
Comparison Framework
| Factor | Weight | Why |
|---|---|---|
| Expense ratio | High | Certain effect, compounds |
| Rolling return consistency | High | Predicts investor experience |
| Portfolio risk characteristics | High | Reveals risk actually taken |
| Risk-adjusted returns | Medium | Meaningful over 3 years or more |
| Fund house process and risk record | Medium | Affects reliability over time |
| Trailing return ranking | Low | End-point sensitive; rotates |
| Scheme size | Contextual | Depends on category |
The lowest-weighted factor is the one most commonly used. A one-year ranking is the weakest evidence available and is the basis on which most retail switching occurs.
Diversifying Across AMCs
Holding across two or three fund houses reduces dependence on a single organisation's process and risk management, which matters most on the debt side, where a single credit event can affect a scheme materially.
But spreading across many AMCs within the same category adds administration without diversification, since the underlying holdings overlap substantially. Two or three well-chosen fund houses is generally sufficient for a retail portfolio.
A Practical Shortlisting Routine
- Fix the category from the goal, horizon and risk profile.
- List schemes in that category with a track record of at least three years.
- Eliminate those in the highest expense quartile unless there is a specific reason.
- Compare rolling returns rather than trailing returns.
- Examine portfolio characteristics to confirm the risk taken is what the mandate implies.
- Check risk-adjusted measures over three and five years.
- Consider fund house process, manager stability and risk record.
- Select two or three schemes across different fund houses.
- Document the basis for the recommendation.
- Review annually, and act only on a change in the scheme or in the investor's circumstances — not on a change in the ranking.
Scheme A shows a five-year trailing return of 16.2% with rolling three-year outcomes ranging from 4.1% to 24.8%. Scheme B shows 15.8% with rolling outcomes from 9.6% to 20.3%. Which is generally the better holding and why?
Why can two schemes with identical Base Expense Ratios present different Total Expense Ratios under the framework in force from 1 April 2026?
Which factor should carry the least weight when comparing schemes within a category?