Nithin Kamath says that we look at reviews before ordering food,
but do 0 research before putting our lifeโs earnings into mutual funds
The reason? Most of us lack knowledge about investing in Mutual Funds
Here's how to choose the right one for you:
but do 0 research before putting our lifeโs earnings into mutual funds
The reason? Most of us lack knowledge about investing in Mutual Funds
Here's how to choose the right one for you:
How often do you invest in MFs from word of mouth or just based on their CAGR returns (or is it just every time ๐)
Let's dive in to understand the metrics one should look for while investing in MFs.
Let's dive in to understand the metrics one should look for while investing in MFs.
The basic premise of a mutual fund is that they invest in bulk in companies from the pool of money they collect from people like you and me.
Of course, their criteria to invest depends upon which type of mutual fund you have selected based on your risk appetite.
Of course, their criteria to invest depends upon which type of mutual fund you have selected based on your risk appetite.
These mutual funds do not keep their holdings constant nor are they obliged to inform you if they change their positions.
MFs report their holdings on a monthly/quarterly basis and churn their portfolio when they feel like.
MFs report their holdings on a monthly/quarterly basis and churn their portfolio when they feel like.
Direct investing in stocks that these MFs hold does not make sense at all.
You will not know when the fund manager changed the positions and allocation.
So, what does one look for?
You will not know when the fund manager changed the positions and allocation.
So, what does one look for?
You look at the fund manager who is taking care of all the money collected.
They are the ones who decides when & where to invest.
You bet on their investment style when you choose a MF to invest.
However, there are some parameters you could look for in their investment style:
They are the ones who decides when & where to invest.
You bet on their investment style when you choose a MF to invest.
However, there are some parameters you could look for in their investment style:
๐๐ผ CATEGORY RETURNS
When a MF is in a certain category (large cap, mid cap or small cap), where does it stand among its peers based on their CAGR returns.
This helps to determine whether you should go with the category leader or a fund which has a potential to grow further.
When a MF is in a certain category (large cap, mid cap or small cap), where does it stand among its peers based on their CAGR returns.
This helps to determine whether you should go with the category leader or a fund which has a potential to grow further.
๐๐ผ EXPENSE RATIO
It is the fees that the fund charges you for managing your money.
This will always impact the returns you take home. You should know that when your income compounds, the expense ratio compounds too.
The lower the better.
It is the fees that the fund charges you for managing your money.
This will always impact the returns you take home. You should know that when your income compounds, the expense ratio compounds too.
The lower the better.
๐๐ผ ALPHA
This is the excess return a fund manager makes above the average market return.
Return on NIFTY50 or SENSEX could be a proxy for market return. So, this alpha should be more than the expense ratio of the fund.
Higher the alpha, the better it is.
This is the excess return a fund manager makes above the average market return.
Return on NIFTY50 or SENSEX could be a proxy for market return. So, this alpha should be more than the expense ratio of the fund.
Higher the alpha, the better it is.
๐๐ผ SHARPE RATIO
This is one of the most popular metrics to look for.
It tells you how much return the manager has earned after taking one unit of risk.
If the manager is earning higher return per unit of risk taken compared to other managers, then you should go for this one.
This is one of the most popular metrics to look for.
It tells you how much return the manager has earned after taking one unit of risk.
If the manager is earning higher return per unit of risk taken compared to other managers, then you should go for this one.
The performance cannot be determined on an isolated basis.
There has to be a comparison between funds to determine which you should go for.
There has to be a comparison between funds to determine which you should go for.
Above all of this, your investment goal is the first thing that you should decide and your capacity to take risk before investing in any instrument of wealth creation.
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