How We Did It

AS 2023 DRAWS TO A CLOSE, investors look out for investing strategies for the new year. So, where should you invest in 2024? In equities, past performance is one of the safest criteria to select mutual funds to invest in. Consistently performing schemes which cushion downsides are some of the best bets. Fortune India devised a two-stage methodology of quantitative and qualitative assessment to identify the top investment options in 14 categories across mutual funds and insurance.

Morningstar India is our knowledge partner for mutual funds and SecureNow Insurance Broker for life, health, term and motor insurance. For qualitative assessment, the data was placed before a jury to identify the Top 3 in each category. The high-powered jury included Devina Mehra, founder, First Global; K.N. Sivasubramanian, ex-CIO, Franklin Templeton; Sunil Singhania, founder & CIO, Abakkus; Vidya Bala, co-founder, primeinvestor.in; and Vijay Chandok, CEO, ICICI Securities.

The Process

We considered 10 categories in mutual funds and four in insurance.

What’s New?

We used rolling returns instead of trailing returns in calculations to identify the schemes that have performed consistently while avoiding any recency bias in performance of the funds. A rolling return is the average of a series of returns over a long period. It is like a monthly SIP for a certain interval and then an average of the series of returns. According to the jury’s suggestion, the Best ULIP funds category was replaced with the best pension funds category in the list. The study also added the best motor insurer category under insurance.

Mutual Funds

Equity mutual funds include Large-cap, Mid-cap, Small-cap and All-cap funds. All-cap funds comprise Flexi-cap, Multi-cap, ELSS or tax-saving, focused equity and large & mid-cap funds. In fixed income, we considered Ultra-short Duration (Ultra-short Duration, low duration and money market funds), short-to-medium duration (short duration, banking & PSU funds and medium-duration funds), corporate bond funds and medium-to-long duration (dynamic bond, medium-to-long duration, long duration & gilt funds). We looked at the best fund managers in equity and fixed income, too.

We considered funds with a minimum five-year vintage in equity categories and minimum three-year vintage in fixed income categories. Further, the schemes with average assets under management (AUMs) for the last 12 months falling in the top 95% of the cumulative AUM of the respective category were considered.

In the best fund manager categories, those who have been managing two or more eligible funds within the asset class for at least three years were considered.

In equity funds, 70% weight was assigned to returns and 30% to risk.

In debt schemes, risk assumed a weight of 40-50% in line with the belief that investing in equity is to earn inflation-beating returns whereas, investors in debt schemes demand safety of capital while earning decent returns.

A final score was reached for each eligible scheme in its respective category as per weights (See table).

For top fund managers, a composite score was ascertained for each fund manager comprising weighted average of the final score by each scheme managed by them by the one-year average AUM of the fund.

Life & Health Insurance: We considered four categories — best life insurer, best term plan, best health insurer and best motor insurer. For the best life insurer, companies were measured on three broad parameters — sales quality, claims performance and returns performance. Sales quality further included persistency by count (13th and 61st month) and policy complaints (per 10,000 policies). Persistency was given 30% weight. In claims, death claims and maturity settlement within 30 days were given equal weight of 10% each. An additional 10% weight was assigned to the death claim paid within 30 days and 10% for claims complaints per 10,000 claims. Further, for the returns parameter, an average of three-years annualised returns of participating and non-participating (non-unit linked) funds were given 10% weight each. FY23 data was used for the study. SecureNow sourced data from public disclosures and IRDAI annual reports.

Following this, best term insurance plans and best equity pension funds were identified from the top five insurers. The cheapest term plans among the term plans of top five life insurers were selected.

For the best health insurer, those with fewer than 5,000 claims were removed. Next, parameters like policy complaints (10%), claims settlement rate — health only (45%), claims payment within 30 days — health only (10%), incurred loss ratio (10%) and health-specific ombudsman decisions favouring insurers/total ombudsman complaints (10%) were considered. Ombudsman information was taken from the FY22 annual report. We also factored in 5% each for lowest waiting period available in any product, highest room rent capping, and No-claim bonus. Insurers within an incurred loss of 80-110% got the highest score. Loss ratios lower than 80% indicate that the pricing is high and ratios of over 110% indicate pricing is unviable in the long run and premiums are likely to be increased.

Motor Insurer: Three broad parameters — sales quality (20%), claims performance (60%) and fair pricing and complaint handling (20%) were evaluated to come up with the best insurers. In claim performance, 40% weight was given to claim settlement rate for motor own-damage of over 95%. A claim settlement rate below 85% was given null score. Claim settlement rate is claims paid/total claims decisions taken. Similarly 20% weight was given to claims ageing i.e. per cent of claims paid within 30 days. Non-health ombudsman cases and policy complaints were also considered.

No futuristic projections were made during the process in any of the categories.