MUTUAL FUNDS: WHY AND HOW?

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Mutual Funds are a great investment option with low-risk factors and this is what makes them a lucrative option for a good investment. Mutual fund services provide a diversity of options for a dozen different securities. 

They are even famous as Financial Planners where they play a convenient role and you can circulate funds as you deem necessary. The Mutual fund managers collect funds from investors and invest them in companies for the benefit of the stockholders. The Company benefits from the income of money where their profit shows a hike and this way, the investors are influenced for providing capital again.

This cycle continues maintaining the financial stability and market liquidity of the market, thus proving their significance.

How Mutual funds have helped in the development of the Financial Sector?

Efficiency, stability, transparency, and inclusion are the four Pillars of Financial sector Development.

How do Mutual funds play a role here?

  • They gather various amounts of funds from investors, thus increasing participation in the financial market.
  • Small Investors get the opportunity to make informed decisions, which makes it possible for them to decrease their risk factor.

Small investors get the chance to invest at a minimal amount of investing

How to Compare Mutual Funds?

A mutual fund is a whole new world that consists of many benefits if chosen correctly. There are more than 40 Parameters through which mutual funds can be compared. To have more clear readability and understanding, we have bifurcated them into 4 Parts: 

  1. Basic Data
  2. General Data
  3. Rating for Debt Funds
  4. Past Returns
  5. Risk Analysis

Basic Data

BASIC DATA  
Fund NameMutual Fund 1Mutual Fund 2Mutual Fund 3
Rating
(Out of 5)
3.005.003.00
Fund ManagerAmit shah (7.8)Manish Mehta (Sanjay Chavda (10.1)
Inception Date01-Jan-201501-Jan-201504-Feb-2015
AUM (Cr)11,023.008724.0052.00
Expense Ratio (%)0.951.012.53
R-SQUARED0.960.960.96
Return (1 Year) (%)8.088.0818.66

Rating (Out of 5): What is the Potential of the Mutual fund to generate long-term returns and how does its riskiness affect the portfolio? The Rating (out of 5) displays the same information.

Fund Manager: You can check the name of the fund manager and his tenure with the particular mutual fund should also be available. You can take the help of Google to know more about the fund manager.

Inception Date: The Older the inception date, the older the age of the fund. An old scheme that has a high rating point can be a good start.

AUM: If you need to see the size of the mutual fund scheme, you can do so by calculating the size of assets in each portfolio which is stated in (Rs. Crore). The higher the AUM the higher your Net Asset Value (NAV).

Expense Ratio (%): In Mutual Funds, A scheme that has a low expense ratio generally performs better over time. 

R-Squared: Every Mutual fund has a Benchmark and the R-Square is a measurement of how accurately the performance is aligned with its benchmark. Its value ranges from 0 to 1. If the Value is Zero then the mutual fund scheme movements are not according to the benchmark. The Value of 1 means the fund perfectly correlates with the benchmark.

Return (1 year) %: This term indicates the rate of appreciation of the scheme’s NAV in the last 12 months. 

 

General Data:

General Data
Return (3 Year) (%)2.992.995.96
Return (Last Qtr) (%)7.2911.8416.03
Return (Last Month) (%)19.4220.7019.57
Return GradeAverageHighAverage
Risk GradeAverageBelow AverageBelow Average
Investment StyleGrowthBlendBlend
Fund’s Market Cap84,09823,09816,453
NAV (Rs)790.9865.879.77
NAV 52W High (Rs)847.2666.849.88
NAV 52W Low (Rs)520.2943.866.42
Minimum Investment
(Lump-sum) (Rs)
100.00500.005000.00
Exit Load (Period) (%)1.001.001.00
Portfolio Turnover (%)57.0020.00154.00

Return: This table helps you to see returns of last month, one quarter, and three years, making it easier to calculate returns received.

Return Grade: Here, the short term returns are graded into five types.

  1. High: top 10% of all funds in its category
  2. Above Average: next 22.5%,
  3. Average: next 35%
  4. Below Average: next 22.5%
  5. Low: bottom 10%.

Risk Grade: All Short term returns are compared with the risk-free rate (like a bank’s FD) to judge the risk of loss for an investor. How can you calculate the relative risk profile of a fund? It is concerned with the category and is then rated. 

  • High: top 10% of all funds in its category
  • Above Average: next 22.5%
  • Average: next 35%
  • Below Average: next 22.5%
  • Low: bottom 10%.

Investment Style: This Factor is majorly available for only equity and hybrid funds. You can classify a fund’s investment style in 3 ways.

  • Growth
  • Value
  • Growth + Value

Growth Style funds opt for growth stocks and value funds mainly buy undervalued stocks.

Fund’s Market Cap: This factor also applies only to equity and hybrid funds. The weighted average market capitalization is visible which indicates if the scheme is investing in large-cap, mid-cap, and small-cap stocks.

NAV: If you need to have an idea about the price trend of the scheme you can have a look at this block which indicates the current NAV, 52W high NAV, and 52W Low NAV, which will give you an idea at one single glance.

Minimum Investment: You can also judge a scheme from its minimum lump-sum investment. Some mutual funds allow you to invest a minimal amount of 500Rs and some demand at least 100000Rs as well.

Exit Load: Generally, the Mutual Funds in India charge an exit load of 1% when units are sold before 12 months holding time.

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