alexa
Home Articles 3 Easy Steps for Analyzing A Mutual Fund

3 Easy Steps for Analyzing A Mutual Fund

IndianMoney.com Research Team | Updated On Thursday, May 10,2018, 10:01 AM
5.0 / 5 based on 1 User Reviews

3 Easy Steps for Analyzing A Mutual Fund

 

 

IndianMoney.com presents 3 Easy Steps for Analyzing A Mutual Fund

Step 1: Find out whether the scheme matches one’s investment objective. It is important that the scheme’s philosophy matches your investment philosophy. For instance, if your investment style is conservative, the fund manager’s investment approach should be conservative or vice versa. Or, if you prefer to invest in growth stocks, your ideal choice would be investing in equity growth funds.
 
Step 2: After identifying a fund compare the same with its peers or relevant benchmark. For example if your equity fund (index) has given a return of 20% find out how much Sensex has given in the same period. Also compare this fund’s performance with other similar equity funds investing in similar companies.
 
It is very important to find out the right category of the fund. For example if the fund invests only in mid caps, its right benchmark will be BSE Mid Caps and right peers will be funds that also invest only in mid caps and NOT those which invest in large caps or small caps.
 
Step 3: Moreover, analyze the performance of fund over a longer period of time i.e. how much return the fund gave in the last 5-yr, 1-yr and 3-months. Simply do not go by its performance in the last 1 month or the last 3 months. Prepare a small table (given below) to analyze the historical returns. These data are publicly available and does not require much effort to collect. 
 
Fund Name
5-Year Return
1-Year Return
3-Months Return
1-Month Return
Average Return
Fund 1
32%
29%
26%
45%
30%
Fund 2
8%
11%
4%
100%
7%
 
 
This table will help you find out whether “high and good” returns from the funds are one-time event or a consistent event. You can also compare your fund with its peers and find out other better options. A consistent return is a MUST before you invest in the fund. DO NOT invest in a fund (e.g. Fund 2) that just gave a very high return last month but have no history of good performance or a fund where everybody including your family and friends are investing. In the above example Fund 1 is better than Fund 2 because it has consistently given high return for the last 5 years. However, Fund 2 has delivered very high return only in the last 1 month. Thus, you as an investor must invest in Fund 1.
 
Follow these small three steps to identify the best mutual funds to grow your wealth.
 
If you are looking for investments in Mutual Funds, please contact IndianMoney.com for FREE and UNBIASED advice. We also facilitate the investment process by delivering the product right at your door steps!! For more information please contact us at contact@indianmoney.com or rahul@indianmoney.com at 09741216622.
 

Did you find this article useful? You can Rate us
5.0 / 5 based on 1 User Reviews
Article Author

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

Get It now!