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In this edition of The Golden Thumb Rule, Kaustubh Belapurkar, Director – Manager Research at Morningstar Investment Research, explains why relying solely on past performance can mislead investors.While many chase last year’s top-performing funds, Belapurkar warns that only a fraction of them sustain their ranking over time.He stresses the importance of consistency, strong investment processes, and disciplined teams over chasing flashy short-term returns — reminding investors that in mutual funds, it’s not the rearview mirror but the road ahead that matters. Edited Excerpts –Kshitij Anand: Let us begin with the basics. What is the golden thumb rule for retail investors? What should they follow when checking if their mutual fund is performing well or not?Kaustubh Belapurkar: If you just go back to basics, most investors, when you think about it, when they are looking to invest, obviously there are golden rules in terms of following an asset allocation approach and all of that.And assuming all of that, that should be the driving force behind any investing decision to start with.But when you have decided what the construct of your portfolio should look like and you have actually come down to picking the funds within, say, categories or asset classes, that is where you start thinking about which funds would best fit in your portfolio.Now, traditionally, and this might sound a little counterintuitive, but of course looking at past performance is useful, but to our mind that should not be the endpoint of an investing decision.More often than not, purely what we call rearview mirror driving — just picking funds that have done well over the recent past one, three, or five years — can actually be quite harmful to your investing decisions.We will talk a little bit more about why that is and how you can avoid it. So that is something to keep in mind: look at performance, but do not make that the holy grail of investing. Saying, “I am going to just pick the best-performing fund over the last one or three years” is going to be counterproductive.Kshitij Anand: Many investors look at past returns as the only measure. Should investors stop there, or is there a rule of thumb to go beyond returns while judging performance?Kaustubh Belapurkar: Let me actually elaborate a little bit with some data. We ran some analysis over the last five years — and the data would hold even if we did it for the last 10–15 years.What we observed was, if you looked at the monthly flows that have come into funds over the last five years and broke it down by quartile of fund performance across categories and asset classes, the one thing that stood out is this: a lot of investing that has traditionally been happening is simply picking the best fund over the last one year on a point-to-point performance basis.That is because it is the most visible number, and it excites investors. If you see a fund that has done, hypothetically, 20% versus the category average of 10%, investors tend to think that perhaps this will continue forever — that the fund will always outperform. But we know that is not necessarily the case.Looking at the data, what we saw was that quartile one and quartile two funds based on one-year track records over the last five years actually garnered about three-fourths of the flows.But if I just do a simple exercise and look at what were the quartile one funds five years ago and what they are today, only 25% of those Q1 funds continued to be quartile one over that time period. So, the persistence of performance can be quite poor.Investors need to get away from this short-termism and the point-to-point performance metric. Which brings me to your question: what should they do? There are a couple of things investors can do.One is, obviously, the options for investors have been growing — there have been new fund launches, and there are a lot of existing funds, so the options are only growing. This makes it confusing, because even if you choose the category, how do you pick among, say, 40 funds?The first thing investors can potentially do is, when we say long term, look at risk-adjusted rolling returns. You can also look at SIP returns, because many investors come through SIPs.Look at three- to five-year SIP returns, which give you an element of consistency in how the fund has delivered month after month or over a longer period.Then, very importantly, you need to look beyond returns. A very simple thing an average investor can do is think about the strength of the investment team and the consistency of the investment process.Returns are a factor or the end result of a good team and a good investment process that can be repeatedly applied, which will give you consistent returns. It takes away the element of “maybe the fund was just at the right place at the right time.” Without a good team and a good process, it is unlikely that a fund can consistently deliver excellent returns. That is something to keep in mind.Kshitij Anand: So, the management pedigree is also something investors should take note of.Kaustubh Belapurkar: Yes.Kshitij Anand: And, well, markets move in cycles, and so do returns. When we talk about consistency versus short-term performance or outperformance, how much weight should investors really give to consistency? Is there a thumb rule to balance the two?Kaustubh Belapurkar: Absolutely. I would say focus purely on consistency rather than looking at short-term outperformance. Let me again elaborate with an example.We did a study looking at the last 10 years of monthly return time series of funds versus their benchmarks. Essentially, we looked at funds that had outperformed their benchmarks.We already know that it is becoming harder to beat benchmarks, so you are already looking at a smaller subset of funds that have actually beaten their benchmarks over, say, 10 years.What we observed was that certain good months of performance can contribute to the entire outperformance of a fund versus its benchmark.The data showed us that, on average, just five months out of the last 10 years — five out of 120 months, or only about 4–4.5% of the overall time period — accounted for the entire outperformance of the fund versus its benchmark.That becomes very important: if you were not invested in that fund during those four or five good months, you would not have beaten the benchmark. The old adage “do not time the market; time in the market is more important than timing the market” is proven here.This is why consistency becomes so important. Some of the best-managed funds will continue to deliver steady outperformance, rather than having great months at one time and poor months at another, which would give investors a very different experience compared to a more consistently managed fund.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

The shares of Abril Paper Tech, a Gujarat-based manufacturer of sublimation heat transfer paper, listed at a 20% discount on Friday, debuting at Rs 48.80 on the BSE SME against an issue price of Rs 61.IPO subscription and demandThe Rs 13.42 crore IPO, priced at Rs 61 per share, received decent investor participation when it opened for bidding between August 29 and September 2. The issue was subscribed 11.20 times overall, led by enthusiastic retail participation.Retail investors bid 16.79 times their quota of 10.44 lakh shares, while the non-institutional investor (NII) portion was subscribed 5.51 times. In total, Abril Paper Tech received over 2.33 crore bids against 20.88 lakh shares on offer to the public. This demand is seen as a reflection of investor interest in niche manufacturing companies with clear sectoral focus.Use of proceedsThe company plans to deploy the IPO proceeds towards funding capital expenditure, working capital, and general corporate purposes. About Rs 5.40 crore has been earmarked for purchasing new machinery to expand production. and another Rs 5 crore will go toward meeting working capital requirements. The balance will be used for general corporate purposes, providing the company with greater operational flexibility.About Abril Paper TechFounded in 2023, Abril Paper Tech is engaged in producing sublimation heat transfer paper, used widely in the digital printing industry for textiles, garments, hosiery, home furnishings, and industrial applications.The company offers a range of paper products from 30 GSM to 90 GSM in various sizes, catering to diverse needs of the printing and apparel sectors. Its manufacturing facility is located in Palsana, Gujarat, strategically positioned to serve textile hubs.Financial performanceThe company has posted sharp growth in FY25. Revenue rose 142% year-on-year to Rs 60.91 crore, while profit after tax climbed 52% to Rs 1.41 crore.OutlookInvestors will watch closely whether Abril Paper Tech can sustain its growth momentum and expand profitably in the fast-growing sublimation printing segment.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

ET Intelligence Group: The rationalisation of GST slabs is expected to boost overall consumption and support economic growth. However, the exact impact will vary from sector to sector and will depend on factors, including the effect of input tax credit and trend in costs of intermediates. Sachin Kumar and Ranjit Shinde analyse the sectorwise implications.AutomobilesTwo-wheeler (2W), passenger car and tractor companies will be major beneficiaries. GST is reduced to 18% on 2Ws, below 350 cc and cars below 1,200 cc from 28%. In addition, the effective duty on large cars will be 40% compared with earlier 43-50%. Mahindra and Mahindra, Maruti Suzuki India, and Escorts Kubota will be major beneficiaries. 2W makers of higher than 350 cc bikes, including Eicher Motors and Bajaj Auto will be affected negatively due to GST rise to 40% from 31%.Banking and FinanceThough there is no direct benefit, an expected increase in consumption of white goods is likely to result in improved credit demand, which is expected to benefit retail focussed lenders, including Bajaj Finance, ICICI Bank and HDFC Bank.123709036CementThe reduction of GST to 18% from 28% is likely to reduce cement price by ₹25-30 per 50 kg bag. The impact of an increase in GST of coal, a major input, to 18% from 5% is likely to be neutralised given that the green energy cess of ₹400 per tonne will no more be levied separately but will now be a part of GST. While these changes are least expected to change the near term demand scenario, cement makers are expected to show improved financials in the coming quarters once construction activities increase after the monsoon recedes. UltraTech Cement, Ambuja Cement look well placed to benefit from this.Chemicals and fertilisersGST on key raw materials such as sulphuric acid, Nitric Acid, Ammonia, micronutrients, menthol and its derivatives to 5% from 12% augurs well for sector incumbents, including Aarti Industries, Tata Chemicals, GSFC, Deepak Fertilizers and RCF.Consumer GoodsMakers of air conditioners, TVs and dishwashers, including Voltas, Blue Star, Havells are expected to benefit from GST reduction on these goods to 18% from 28%. Companies selling fast moving consumer goods (FMCG) in foods and personal care categories such as HUL, Marico, Dabur, Britannia and Nestle may show demand uptick after GST reduction to 5% from 12-18%.HotelsGST on average room rates below ₹7,500 is reduced to 5% from 12%. This augurs well for Lemon Tree Hotels and Ginger chain of Indian Hotels.InsuranceTraditional plans such as pure protection plans currently taxed at 18% will benefit the most from the exemption. However, a nil GST will take away the benefit of availing input tax credit (ITC). Companies with higher traditional business and lower expense structure such as LIC, HDFC Life and Max Financial Services will benefit more than ICICI Prudential and SBI Life.PowerGST reduction to 5% from 12% on solar cells augurs well for renewable energy companies including Acme Solar, Waaree Energies and Premier Energy. Thermal power producers on the other hand such as NTPC and Tata Power are likely to be affected by the GST increase on coal to 18% from 5%.Textiles, retail and FootwearGST reduction to 5% from 12% on Synthetic yarn, textile floor coverings, towels, woven fabrics, and technical textiles is expected to benefit Welspun Living, Vardhman Textiles and Trident. GST reduction on footwear below ₹2,500 may benefit Bata India and Relaxo Footwears. Retailers including Trent, Aditya Birla Fashions and Go Fashion may benefit from the rate cuts. However, high-end companies including Vedant Fashions and Raymond may face the brunt of GST increase to 18% from 12%.