Mutual Fund Momentum Rotation
Ranks mutual fund schemes on 12-month NAV growth and holds the top 10, rebalanced monthly. The same momentum logic as the equity template, applied to funds instead of stocks — and a direct test of whether chasing last year's best fund works.
Why this is expected to work
This template is deliberately included as a hypothesis to falsify, not a recommendation. Buying last year's top-performing fund is the single most common retail investment behaviour in India, and the evidence that it works is weak: S&P's SPIVA India Persistence Scorecards have repeatedly found that only a small minority of top-quartile Indian equity funds stay top-quartile over the following three years, close to what chance would produce. Carhart (1997) reached the same conclusion for US funds and showed the apparent persistence that does exist is mostly the momentum factor in the underlying stocks, not manager skill. Run this against a plain index fund over the same window before you conclude anything. Two practical cautions the backtest will not show you: exit loads on redemption inside a year, and short-term capital gains tax on every switch, both of which fall entirely on a monthly rotation.
How the pipeline works
NAV 12 months ago
Computes nav_12m_ago = @shift(close, 252)
@shift(close, 252) Has 12 months of NAV history
Keeps rows where nav_12m_ago > 0
nav_12m_ago > 0 12-month NAV growth
Computes nav_return_12m = close / nav_12m_ago
close / nav_12m_ago Top 10 by 12-month NAV growth
Selects the top 10 by nav_return_12m
What this template teaches
- Mutual fund schemes as a tradeable universe
- NAV riding the standard close field
- Applying a stock factor to a different instrument class
- Using a template to test a belief rather than confirm it
Does Buying Last Year's Best Mutual Fund Work?
It is the most common investment decision in India. The persistence evidence says top-quartile funds stay top-quartile at close to chance rates. Here is a template built specifically so you can test it yourself.
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