There are hundreds of Mutual Fund Schemes available in the market. How do you know which one is right for you?
We get asked this question a lot and so to help you make the right choice, we are listing down some top criteria to judge mutual funds by:
The ability of a fund scheme to deliver consistent performance over different time periods is a mark of a good mutual fund scheme.
Performance is measured by the returns that a particular fund scheme has generated over different periods i.e. in the last 6 months, last 1 year, last 3 years, etc. If a fund scheme has delivered returns in line with its category and has done so in a consistent manner, it usually means it is a good scheme in that fund category.
On the other hand, if a fund shows greater variability in returns in different timeframes or exhibits higher divergence in performance from the rest of the category, it may imply poor fund management or heavy portfolio skew towards a particular sector or asset class. Higher caution is advised before investing in these schemes.
There are specialized rating agencies that apply sophisticated models to large volumes of performance and other fund data in order to identify funds that will be among the top performers in their respective categories. Such analysis results in star ratings for Mutual Funds schemes, 5 stars being the highest and 1 star being the lowest.
These ratings are a great aid when it comes to picking the right scheme. You are essentially enlisting the help of qualified analysts and data that may otherwise not be available to an individual investor.
We use Morning Star Mutual Funds Ratings in MobiKwik. MorningStar is one of the world’s most renowned
A fund manager is to your financial health what your doctor is to your physical health. Look for an experienced fund manager with a proven track record to entrust your money with. It is ultimately the fund manager’s skills that generate that extra returns over the fund’s benchmark or over passive index funds. Check out the performance of the other funds that the manager manages. Those can be additional pointers. After all, you will be paying the fund manager annual fees to manage your money.
Expense ratio is the fees that the Mutual Fund charges to manage your money. Pay close attention to this number as it directly impacts your returns from the mutual fund. A higher expense ratio may be justified if the fund returns are consistently above the category benchmark and category peers. It is a drag on your returns otherwise. For similar returns performance, it is always better to choose a fund with a lower expense ratio.
Exit loads is a fine that is applied when an investor exits ( i.e. sells fund units ) from a mutual fund scheme before a specified period. As an individual, you may have a sudden and urgent need for money, especially during exigencies. It is, therefore, better to select fund schemes with the lowest exit loads. Although it is not advisable to prematurely withdraw your mutual funds, extraordinary circumstances may arise.
Does all of this sound like a lot? Don’t worry, to make your life easier, we have compiled a list of handpicked Mutual Fund schemes that are winners in their respective categories. At MobiKwik, we apply big-data science and analysis to come up with this list that can help you narrow down your investment choices from the hundreds of mutual funds available. We receive no commissions or kick-backs from Mutual Fund Companies for our recommendations — so you can be sure that our advice is honest — and in your best interest.
Check out the recommended equity funds from MobiKwik here.
This post has been reviewed by Kunal Bajaj.
Kunal has 18 years of experience in Institutional Equity Sales & Risk Management at some of the world’s largest financial institutions like Credit Suisse, J.P. Morgan, CLSA and Goldman Sachs Japan. His last role was Managing Director and Head of Equity Sales at Jefferies India. He is a rank-holding Chartered Accountant.