We have all heard a lot about mutual funds and its benefits, ease of getting into and the returns associated that appreciates every year when the market seems great. There are umpteen number of funds available for you to choose from, in fact, you need whole of your year to learn about the funds in detail, to consider their working and its return pattern and then start your journey; maybe it will even take more time as there are many new funds raising each day.
So, how do choose the fund that is suitable for you in terms of realizing your financial objective and also fits your budget well, without hurting any other commitments? Well, here are a few parameters that we consider as a common ground to analyze a mutual fund and make the choice.
Ranking in terms of performance:
Yes, performance matters everywhere!! But, here the performance isn’t considered for just a year, its compared from its peer. Every scheme performs either better, best or worst than its peer, and its taken every quarter. This whole detail is available with the AMC. The ranking will be given based on its performance compared to its peer in the same group, like of the fund is a multicap scheme then its considered among other same type funds. If the fund is continuously performing good, sometimes exceptional, then you can head for it. If you find the opposite, then its time to exit from there.
Scheme Size and Asset size:
Though the scheme size and asset size vary to each fund, the majority of them are invested in debt funds, to be on the safer side. This is called Assets Under Management and should be high.
Analysis of Alpha and Beta:
We have heard this terminology in the funds but maybe hasn’t looked too much at it. The alpha component says how better is the fund performance and the percentage of profits returned, while the beta component talks about the percentage of downside, the risk associated; if it goes. Just like the other ratios like Sharpe ratio, risk, and returns ratio should also be analyzed.
The name itself says what is the factor, so any fund that has a high expense ratio is sure to be rejected. The expenses are that of management and the fund distribution, which reflects in your fund, so the high expense ratio is a lesser returning fund.
This is the important part, as he/she will be the person held responsible for the working of the fund. He decides as to how the distribution happens.