Are you giving mutual fund analysis the attention it deserves in your investment journey? If not, it’s time to shift gears. Neglecting the critical step of analysing a mutual fund’s performance before purchasing can significantly affect your investment portfolio. Therefore, in this blog, we’ll explore the importance of mutual fund analysis and how you can easily do MF analysis .
Mutual fund analysis evaluates a fund’s past performance, risk profile, and investment strategy to determine if it aligns with your financial goals and risk tolerance. It’s like dissecting a fund to see if it’s the right fit for you.
Here’s what you analyse during MF research:
Before researching mutual funds, it’s essential to consider your investment objectives, whether you’re planning for a vacation, buying a house, retirement, or more. Given that investment strategies vary based on different financial goals that can be short-term or long-term, it is best to consider several factors. Here are some key factors to evaluate:
Analysing mutual fund performance is one of the most important factors in investment management. Therefore, we have listed certain parameters to consider when analysing mutual fund performance.
It’s essential to compare your mutual fund’s performance against a suitable benchmark to understand its performance relative to the market. A benchmark is like a standard index or a bunch of securities representing the market or a particular sector. By comparing your fund’s returns to its benchmark, you can see if it’s doing better or worse in the market. For example, the benchmark for the Parag Parikh Flexi Cap Fund will be NIFTY 500 – TRI.
The expense ratio is super important to think about when you’re doing MF analysis. It shows the yearly fees and costs the fund company charges for running the fund. This fee covers the costs of operating the fund, such as management fees, administrative costs, and other expenses like marketing, distribution, and any additional costs specific to the fund.
When analysing fund performance, it’s important to study its history. It involves looking at how the fund has performed over different periods, such as the past one year, three years, five years, etc. By examining the fund’s historical performance, investors can gain insights into its consistency, volatility, and long-term growth potential. Additionally, studying fund history allows investors to evaluate how the fund has performed during various market conditions, helping them make informed investment decisions.
Next, check the Portfolio Turnover Ratio (PTR). This is important when analysing fund performance because it gives insight into how frequently the fund buys and sells assets within the portfolio. A high PTR may indicate higher trading activity, increasing transaction costs and taxes and potentially impacting overall returns. On the other hand, a lower PTR suggests less frequent trading, which may result in lower costs and taxes, potentially benefiting investors in the long run.
Next on the list is comparing fund maturity periods. This comparison aids investors in comprehending the duration over which the funds have been under management. The selection of an appropriate maturity period for your chosen fund is guided by our investment objectives. For instance, if your financial goal is short-term, such as saving for a down payment, it would be important to concentrate on debt funds with maturities that correspond to your timeline. On the other hand, equity funds with extended maturity periods may be more suitable for long-term wealth accumulation purposes.
While evaluating mutual fund performance, it’s important to look at risk-adjusted returns. These risk-adjusted returns mean how much risk was taken to make those returns. Here are some important things to look at:
This is paramount. Ensure the fund matches your objectives—whether conservative or aggressive. Consider if its strategy aligns with stability or growth. For instance, choose debt funds for income stability rather than dynamic approaches. Opt for index funds or ETFs for index-level returns to avoid active equity risks and higher expenses.
Longevity matters as it ensures consistency in strategy and cohesion among team members. Stable management teams indicate better performance over time due to continuity and consistent decision-making.
Look beyond the expense ratio, considering exit loads and disclosed expenses. Equity funds typically have higher ratios compared to index funds. Compare costs before investing.
Different funds attract taxes, such as short-term capital gains (STCG) for equity funds sold within a year and STCG for debt funds before three years. Long-term capital gains (LTCG) on equity funds above Rs. 1 lakh are taxed at 10%, while for STCG, the tax rate is 15%. Consider exit loads, impacting eventual returns.
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First, select the right type of mutual fund. With the help of a mutual fund screener, you can easily add filters and comb out the best mutual funds in India within minutes.
In conclusion, a thorough mutual fund analysis can be crucial for making informed investment decisions. Investors can tailor their portfolios by assessing factors to align with their financial objectives. Regular review and adjustments based on changing circumstances ensure your mutual fund portfolio remains in line.
As always, it’s important to do your own research and/or consult a financial advisor before investing.
One can analyse mutual funds by assessing their performance, fees, risk, and objectives. Additionally, review historical returns, expense ratios, volatility, and alignment with investment goals to make informed decisions.
2. What is the objective of mutual fund analysis?Mutual fund analysis aims to assess suitability for your goals, evaluating risk, performance, and costs to make informed investment decisions.
3. What is the tool to evaluate mutual funds?You can easily use a mutual fund analysis tool or an MF screener and add filters according to your specifications to get the list of the best mutual funds in India that you might invest in.
4. What is the mutual fund ratio?The mutual fund ratio evaluates how a fund reacts to changes in the market. Therefore, during mutual fund ratio analysis, investors evaluate key metrics like the Expense ratio, Beta & Alpha, and Sharpe Ratio to assess performance, risk, and cost.
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