parametes to analysis , before buying mutual funds

 

1. Performance History

a) Track Record:

  • Example: If you're evaluating Axis Bluechip Fund, check its performance over the last 1, 3, and 5 years.
    • 1-Year Return (2024): +15%
    • 3-Year CAGR: +14%
    • 5-Year CAGR: +12%
  • Compare these returns with its benchmark index (e.g., Nifty 50 TRI). If the fund consistently beats the benchmark, it's a good sign of reliability.

b) Consistency:

  • Look for funds that perform well in both bull and bear markets.
  • Example: During the COVID-19 market crash (March 2020), Mirae Asset Emerging Bluechip Fund minimized losses compared to peers, indicating good risk management.

c) CAGR:

  • CAGR (Compounded Annual Growth Rate) measures how a fund has grown annually over a period.
  • Example: Suppose a fund grows from ₹1,00,000 to ₹2,00,000 in 5 years. Its CAGR is ~14.87%. Compare this with peers and the benchmark.

2. Expense Ratio

  • Expense Ratio reflects the cost of managing the fund, directly reducing your net returns.
  • Example:
    • Fund A (Direct Plan): Expense ratio = 0.5%, 5-Year CAGR = 12.5%
    • Fund B (Regular Plan): Expense ratio = 1.5%, 5-Year CAGR = 11.2%
  • Opting for Fund A (Direct Plan) provides better net returns, especially for long-term investments.

3. Portfolio Composition

a) Diversification:

  • A well-diversified portfolio reduces risks.
  • Example: HDFC Flexi Cap Fund invests across large-cap (40%), mid-cap (35%), and small-cap (25%) stocks, offering a balanced risk-reward profile.
  • Avoid funds heavily concentrated in one sector (e.g., IT or banking) unless you're comfortable with sector-specific risks.

b) Risk Profile:

  • Aggressive investors may choose small-cap funds like Nippon India Small Cap Fund for higher returns but higher risk.
  • Conservative investors might prefer hybrid funds like ICICI Prudential Balanced Advantage Fund, which combines equity and debt for stability.

c) Flexibility:

  • Some fund managers actively invest in IPOs or emerging opportunities.
  • Example: SBI Small Cap Fund participated in promising IPOs like Nykaa and Zomato, generating substantial gains.

4. Fund Manager's Experience

  • The fund manager’s skill significantly impacts performance.
  • Example: Prashant Jain (formerly with HDFC Mutual Fund) is known for successfully managing HDFC Top 100 Fund for over 20 years, delivering above-average returns.
  • Analyze their track record: How well have their funds performed in different market conditions?

5. Benchmark Comparison

  • A good fund should consistently outperform its benchmark.
  • Example:
    • UTI Nifty Index Fund tracks the Nifty 50 index with minimal deviation.
    • Parag Parikh Flexi Cap Fund, an actively managed fund, has delivered +18% CAGR (5 years), outperforming the Nifty 50's +12% CAGR in the same period.

6. Ratings and Reviews

  • Ratings from agencies like CRISIL and Morningstar help gauge the fund’s quality.
  • Example:
    • Mirae Asset Large Cap Fund holds a 5-star rating from Morningstar for its consistent performance and risk-adjusted returns.
    • User reviews on platforms like Groww or Value Research provide insights into investor experiences.

Conclusion:

By systematically analyzing these factors, investors can make informed decisions. For instance, choosing Axis Bluechip Fund (Direct Growth) might suit someone seeking consistent returns with a low expense ratio, a seasoned fund manager, and a diversified portfolio that outperforms benchmarks.

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