Choosing the right mutual fund scheme is crucial, especially when there are so many schemes to pick from. Comparing mutual funds based on various criteria can help you make a wiser investment decision.
How do I compare mutual funds?
It is important to analyse various parameters before you choose the mutual fund that suits your needs. Investment objectives, benchmark index, risk type, expense ratio, exit loads and returns are certain parameters to analyse while choosing a fund that suits your needs.
How do I compare equity mutual funds?
You can use the tips mentioned below to compare equity mutual funds:
Compare the fund to its benchmark
Check if the returns are consistent and how it has performed in different market cycles.
Compare and analyse the portfolio holdings to understand stock concentration and sector exposure
How do I compare debt mutual funds?
You can compare debt mutual funds using the tips mentioned below:
Ensure the portfolio has enough AA and AAA-rated securities to minimise credit risk. Credit rating helps understand the credit quality of the securities in the portfolio.
Check the modified duration of the debt security. It provides information about the interest rate risk of the debt fund.
Yield to maturity is an aspect which represents the rate of return earned if the investor holds it till maturity.
What are some common mistakes that you need to avoid while comparing funds?
Making a choice based on a single criterion: Sometimes, investors choose based on one factor, such as risk or return. It does not provide enough information regarding whether the mutual fund is the right choice.
Comparing just short-term returns data: Many investors only look at short-term returns data of up to a year when they compare mutual funds. It can be misleading, especially in the case of equity funds which are susceptible to short-term fluctuations.