How to Compare Mutual Fund Schemes – Parameters & Things to Consider
Are you having a hard time choosing a mutual fund that suits your investment portfolio? With the continuous expansion and advancements in the investing world, individuals face the daunting decision of choosing among countless mutual fund schemes.
Indeed, having choices is an investor’s dream, but having too many choices can make your selection procedure exhausting. It is crucial to compare various schemes to find the mutual fund that fits your risk appetite and financial goals.
Mutual fund comparison tools come to your aid and take the burden off of you to make this important investment decision.
Keep reading further if your aim is to analyse the performance of various mutual fund schemes.
Things to Consider for Mutual Funds Comparision
The table below is an example of a mutual fund comparison tool:
| Parameters | Axis Midcap Fund | Navi Nifty 50 Index Fund | Add Fund + | Add Fund + |
| Category and sub-category | Mid Cap, Equity | Nifty 50 | ||
| Risk | Very high | Very high | – | – |
| Fund age | 9 years, 1 month | 8 months | ||
| Fund Size (AUM) | Rs. 16,754 crore | Rs. 163 crore | ||
| Portfolio | 87.96% in equity and 10.81% in debt | 100% in 50 of the largest Indian companies | – | |
| NAV | Rs. 72.28 | Rs. 10.51 | – | – |
| Minimum SIP | Rs. 500 | Rs. 500 | – | – |
| Lumpsum investment | Rs. 5000 | Rs. 500 | ||
| Expense ratio | 0.46% | 0.06% | – | – |
| Exit load | 1% | Nil | – | – |
| Lock-in period | None | None | – | – |
| Fund Returns | ||||
| 1-year returns | 40.03 % | NA | ||
| 3-year returns | 27.50 % | NA | ||
| 5-year returns | 23.21 % | NA | ||
| Fund details | ||||
| Fund manager | Shreyash Devalkar | Pranav Vasa | ||
| Fund manager experience | 17 years of work experience | 6+ years of equity market experience | ||
| Fund manager education | Bachelor in Chemical Engineering & Masters in Management Studies | PGDM Finance and B.E. (computer) | ||
| Benchmark Index | S&P BSE 150 MidCap TRI | Nifty 50 Index TRI | ||
| Investment horizon | Good for long term | Good for long term |
Parameters for Comparing Mutual Funds
The table illustrates how a mutual fund comparison tool makes your investment decision easier by comparing important features and presenting them in a tabular form. That said, there are a few parameters that you should certainly take a look at before investing your hard-earned money. These factors are as follows:
1. Returns
As one invests to fulfil certain financial goals, returns play an important role. Most investors look at 1-year, 3-year, and 5-year returns to compare the performance of mutual fund schemes and analyse the amount they can gain upon exiting the scheme.
2. Benchmark Index
It is mandatory for each fund to declare a benchmark that acts as a target for the particular scheme. An actively-managed scheme is an ideal option only if it offers returns higher than the market benchmark.
So, if your fund offers a 1-year return of 20% while the benchmark index offers 22%, it means that the former has underperformed. Thus, it is crucial to compare how much a scheme’s returns fall or rise over a period in comparison to the benchmark index.
3. Expense Ratio
Asset management companies charge a fee, called expense ratio, to cover the management and administrative costs of a fund. It is deducted from the total annual revenue that the fund generates, and it harms your overall returns. A higher expense ratio means that the deduction from your returns is greater.
4. Portfolio Information
Every scheme has an objective, according to which it invests your funds in a particular category. How the fund corpus is allocated and invested in different securities, companies, and sectors determine the scheme’s risk profile and yield generation. Thus, knowledge about sector allocation, the number of securities held, and average maturity duration is vital for analysing the performance of mutual funds.
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Why Should You Compare Mutual Funds?
Broadly, mutual funds are categorised under the heads of equity, debt, and hybrid. However, to an individual, especially one who is entering the investment world for the first time, all the equity-oriented schemes might appear to be the same.
There are multiple schemes within each of these categories that make your investment decision puzzling. Thus, knowing the difference and the features of these three categories is not enough.
Even though you can invest in mutual funds with just a few clicks, keep in mind that it is a long-term commitment. Based on just annual returns or NAV (Net Asset Value), you cannot make a hasty decision that will harm your finances.
To make the right choice, there are multiple factors that one needs to consider and compare across different funds. Doing this manually can be a highly time-consuming task for investors; fortunately, various websites offer an accessible and hassle-free mutual fund comparison tool. By simply adding the names of your desired funds, you can analyse their consistency, short-term, long-term performance, and quality.
Final Word
In India, there are more than 2000 mutual fund schemes available for you to pick from. As you are investing your hard-earned money, it is vital that you select the most suitable mutual fund for yourself.
In order to choose a scheme that helps you maximise returns and fulfil your investment goals, make sure to use a mutual fund comparison tool.
FAQs
Ans: The most suitable mutual fund scheme can vary from one individual to the other. Every investor has a different risk appetite, financial requirement and investment portfolio. One has to analyze and compare among numerous schemes to select the one that fits their investment needs.
Ans: NFO or New Fund Offering is when an asset management company initially issues its fund units to investors. Similar to IPO in the stock market, NFO is a first subscription offering that helps the AMC to raise capital.
Ans: Unlike the stock market, where you invest by yourself, your mutual fund scheme is professionally managed by a fund manager. Their decisions impact how your fund will perform and the returns you will make. A more experienced and qualified manager is likely to make your investment successful.
Ans: VRO or Value Research Online rating is a grading system in which various mutual fund schemes are assigned a rating between 1 to 5 stars. A rating of 5 stars means that a fund is one of the best to invest in. Websites offering mutual fund comparison tend to provide a VRO rating to summarise the overall performance of a scheme.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
