A reader sent us a rather strongly worded email after reading the Handpicked List of Mutual Funds Oct-Dec 2023 (PlumbLine). He was unhappy that we are against investing in active mid cap and small cap fuds and wanted to know why.Our decision stems from our monthly equity mutual fund screeners. These use rolling returns to determine how consistently a fund has outperformed a benchmark. As we recently saw – Nifty vs. Nifty Next 50 vs. Nifty Midcap 150 vs Nifty Smallcap 250 – the small cap index typically underperforms the mid cap index.Therefore, we choose Nifty Midcap 150 TRI as a benchmark for evaluating active small cap finds and mid cap funds. Also, Why are you comparing Small Cap Mutual Funds with a Mid Cap Index?! We also use NiftyMidcap15Quality50TRI as an additional benchmark but shall not discuss the result here. You can consult our latest equity MF screener for details.Rolling return outperformance consistency: the fund returns are compared with category benchmark returns over every possible 3Y,4Y, and 5Y period from 1 Jan 2013. The higher the outperformance consistency, the better. Suppose 876 fund returns were compared with 876 benchmark returns, and the fund has beaten the benchmark 675 times. The consistency score will be 675/876 ~ 77%.Mid cap mutual fundsThere are 24 mid cap mutual funds with a five-year history. Only six have beaten the Nifty Midcap 150 TRI with 60% or more performance consistency over every possible five-year duration from Jan 2013 to Sep 2023!There are 25 mid cap mutual funds with a four-year history. Over four years (same rolling returns window), only seven have beaten the Nifty Midcap 150 TRI with 60% performance consistency or more.There are 26 mid cap mutual funds with a three-year history. Over three years (same rolling returns window), only seven have beaten the Nifty Midcap 150 TRI with 60% performance consistency or more.Small cap mutual fundsThere are 15 small cap mutual funds with a five-year history. Only six have beaten the Nifty Midcap 150 TRI with 60% or more performance consistency over every possible five-year duration from Jan 2013 to Sep 2023!There are 20 small cap mutual funds with a four-year history. Over four years (same rolling returns window), only 11 have beaten the Nifty Midcap 150 TRI with 60% performance consistency or more.There are 21 small cap mutual funds with a three-year history. Over three years (same rolling returns window), only ten have beaten the Nifty Midcap 150 TRI with 60% performance consistency or more.Regular readers would know that we usually demand 70% rolling return performance consistency. Even with this relaxation, the performance is quite pathetic. Today, you may hold an outperformed, but that is not a guarantee that it will stay the same in future.This is why we cannot recommend actively managed mid cap or small cap funds in our handpicked List of Mutual Funds (PlumbLine). What about passive funds?Do share this article with your friends using the buttons below. 🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users! Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this! New Tool! => Track your mutual funds and stock investments with this Google Sheet!Follow Freefincal on Google NewsSubscribe to the freefincal Youtube Channel.Follow freefincal on WhatsApp Podcast: Let’s Get RICH With PATTU! Every single Indian CAN grow their wealth! 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