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A step-by-step guide for analysing the mutual fund

Most of us take time to choose while shopping. It is natural to be confused when multiple options are presented; this holds in almost all aspects of life. Whether shopping for clothes, house hunting or even investments, the number of choices makes shortlisting even more difficult. Here’s a go-to guide to take one thing off the platter today.

Check out how to analyse mutual fund so that your investment choices are easier, more focused and hassle-free. Since mutual fund investments are all about your hard-earned money, meticulous analysis and understanding are necessary to choose the suitable scheme. Following are a few aspects an investor can consider while analysing any mutual fund:

Performance Against Benchmark Index

The first factor to consider while analysing mutual fund is the scheme’s performance against its benchmark. The Benchmark Index is a standard against which we measure the performance of the respective scheme. A mutual fund whose performance is higher than its benchmark performance can be considered a well-performing mutual fund.

Track Record of The Fund

Although past performance does not guarantee the future performance of a scheme, looking at the historical data may give a fair idea about the fund’s steadiness over the years. The steadily growing performance graph indicates that the fund may have the potential to withstand ups and downs in various market cycles and can create wealth in the long run. However, this factor can only be analysed in the case of long-established funds.

Market Cap Preference

The Scheme Information Document (SID) may specify the fund’s weightage across market caps. So, if you prefer large caps or mid-caps or are looking for a mix, this analysis can help you choose accordingly.

Peers Comparison

Check how the mutual fund schemes under the same category are performing, as it is only fair to compare apples with apples. Let’s say you want to invest in a small-cap fund , then using PoWER strategy, you can easily shortlist the small-cap fund which has better (Po)erformance over its benchmark, (W)ide investor base, years of (E)xperience across market cycles and has (R)ight sized given the fund’s objective as compared to other small-cap funds.

Expense Ratio

The expense ratio is the fee charged by the asset management company to manage the funds. The lesser the expense ratio, the smaller portion of capital gains you will have to pay to the mutual fund house. While they may seem insignificant initially, they add to the whole calculation and may reflect considerably in the long run and for a hefty sum. However, this should not be the main criterion in mutual fund analysis.

Overlap Ratio

What is the point of investing in two funds if they ultimately invest in the same companies? Although there’s no standard number for this assessment, the overlap ratio should be as low as possible.

Apart from these, other things can be used for evaluating a mutual fund, like the Sharpe ratio, Price-to-Earnings or the P/E ratio, the performance of other funds managed by the fund manager, etc. Taking help from a financial advisor may help you make an informed decision too.

So, mutual funds are subject to market risks, but investing without studying these is even riskier. And now that you know how to analyse mutual fund performance start investing for your life goals today.


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Disclaimer:
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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