Summary: This cover story applies a four-test framework to young funds under three years old, and names 10 ‘Core Contenders’ that pass. It stresses these aren’t ratings, just funds that have done nothing wrong yet, and the three-year rule still stands.
Summary: This cover story applies a four-test framework to young funds under three years old, and names 10 ‘Core Contenders’ that pass. It stresses these aren’t ratings, just funds that have done nothing wrong yet, and the three-year rule still stands.
Our advice on equity funds has not changed in 30 years: buy tested, proven funds and hold them for the long term. A flexi-cap, a multi-cap, a large & mid-cap or a value fund is more than enough for most investors. Reason? These funds need little attention, so you trade less and pay less tax. We don’t rate a fund till it has three years of history. Lastly, we discourage investing in sectoral and thematic funds because of their high concentration, cyclical nature and the fact that they are typically launched after a sector has already had its run.
A wave of new funds is now testing these rules. The last three years brought more launches than any period I can recall. On August 31, 2026, 164 actively managed equity and hybrid funds were between one and three years old. Together, they hold Rs 2.7 lakh crore of investor money. Readers hold them. Every month, many of them write to ask what we think of a fund we have not yet rated, and our answer has been to wait. That answer is correct. It is also incomplete, because a good part of that money is already in.
Something else has changed. Many funds carrying a thematic label are, in practice, diversified. An export fund owns IT, pharma, autos and chemicals. An MNC fund owns consumer companies, engineering and banks. Innovation, special opportunities, momentum and focused funds pick from the whole market. Our category rule was written for the old thematic fund that bought one sector at its peak. These are a different animal, and treating them as one would be lazy.
So, we built an internal process for exactly this question. Our analysts turn to it whenever
a reader asks about a specific fund, and it runs every month on every fund, no matter how young.
It asks four things of a fund with a short track record, each measured from its launch date:
Has the fund beaten its benchmark since launch and by how much?
On what share of days has its one-year rolling return been ahead of the benchmark?
What happened in the months when the fund’s benchmark fell?
Have the last 12 months held up?
Any young fund has to pass all four tests. Only then do we look at what it owns. Each stock in its portfolio carries a Value Research Stock Rating and a Quality Score, and we weight those by the portfolio to get a rating and a quality score for the fund itself. That tells us whether the return came from good businesses or from a bet.
In August, 103 of the 164 young funds passed the four tests. That is a generous result, and I want to be honest about why. Young funds are small and nimble. Most were launched in a rising market. Our own testing of the method on older funds shows that 52 to 73 per cent pass in their first three years, versus 29 to 64 per cent after that. The reassurance is on the other side: 91 to 100 per cent of funds that pass at three years are still passing later; mid-cap funds are the exception at 76 per cent. A fund that passes has done nothing wrong yet, measured every month. It is not a rating.
From those 100-odd funds, we picked 10. We started with the numbers: how far ahead of the benchmark, how consistently and what happened in the lean months. Then we did the part the rules cannot do. We read the portfolios, looked at what the manager had actually bought and drew on our conversations with the people running the money. The 10 that came through are diversified enough to sit at the core of a portfolio, whatever their label says. We call them the ‘Core Contenders’: contenders because they are still proving it. We also found five sector funds that pass the same tests. They need a different kind of caution, and they get their own story in December.
Two cautions before the list. First, the record is short. Two of the 10 funds have exactly 13 months of history, which means their alpha since launch is their one-year alpha. Second, a fund that has beaten the benchmark on every day it could be measured has still only been measured for a year or two. That is the point of the three-year rule, and it has not gone away.
If you already have a portfolio built carefully for the long term, you need none of these. Leave it alone. If you are looking for a new long-term fund, choose one of the 10, not five. Direct plan. Give it the three years we ask of every fund. We will keep measuring it every month. If a fund on this list stops passing, we will say so.
How to read the numbers
Return since launch: The fund’s annualised return from its launch date to August 31, 2026, compared with the same figure for the BSE 500 index, used as the benchmark.
Consistency: The share of days on which the fund’s one-year rolling return has been ahead of the benchmark’s, counted from the day the fund first had a one-year record. A figure of 100 per cent means it has never been behind on that measure.
Alpha: The fund’s return after adjusting for how much market risk it carried, in percentage points a year. Every fund moves with its benchmark, and some move more than one-for-one. A fund that amplifies the index by 20 per cent should return 20 per cent more than the index in a rising market, purely from that exposure, with no skill involved. Alpha strips out that expected return and reports what is left. An alpha of 6.2 means the fund beat what its market exposure alone would have delivered by 6.2 percentage points a year. A negative alpha means the fund fell short of that expectation, even if it still beat the index outright.
Downside alpha: We split the months since launch into those in which the benchmark fell and measure the fund’s annualised lead over the benchmark in that period. A fund that protects capital shows a high downside alpha.
Portfolio quality score: The quality score is one of the four components of the Stock Rating and stands on its own. It measures business efficiency through return on equity, return on capital employed, operating margins, receivables and balance-sheet strength through debt, contingent liabilities and working capital. Banks and NBFCs are scored on their own set of measures. The fund’s Quality Score is again the portfolio-weighted average of its holdings, out of 10. A high score means the return came from strong businesses. A low score means the manager is being paid to be early, and returns depend on those businesses becoming strong.
Top 10 holdings: The share of assets in the 10 largest positions. Above 50 per cent is concentrated by design; below 30 per cent is a broad book.
Old Bridge Focused Fund: Andrade is back, and cautious
The Old Bridge Focused Fund is Kenneth Andrade’s first mutual fund since he left IDFC in 2015, where he ran one of the country’s largest equity funds. He founded Old Bridge Capital as a PMS (portfolio management services) that year and returned to mutual funds with this scheme.
The style has not changed. Andrade looks for businesses early in their cycle, with low debt and undemanding valuations, and then holds them. The fund is focused by mandate, so it owns a concentrated set of positions, and the top 10 stocks make up more than half of the portfolio.
The record is good in the right places. Since launch, the Old Bridge Focused Fund has returned 14.2 per cent a year against 7.7 per cent for the BSE 500 TRI. The 6.2 percentage-point annual alpha is respectable, not spectacular.
What stands out is where it was earned. In the 11 months when the benchmark fell, the Old Bridge Focused Fund’s downside alpha was 11.4. In the 20 months when the benchmark rose, its upside alpha was 3.3. This fund protected capital in bad months and kept pace, no more, in good ones. That is the shape you want from a concentrated portfolio.
Its consistency is 74 per cent, which means the fund’s one-year rolling return has beaten the benchmark’s on roughly three days in four. That is lower than most funds on this list, reflecting the early months when a value-til
This article was originally published on September 20, 2026.