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.