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However, the volatility of both the funds differed. On the flip side, the additional volatility of Fund B helped to lower the average cost of investments. When investing via a SIP, you need to keep this in mind.
Therefore, instead of chasing performance or the scheme with the best returns over a period or multiple periods, you need to select the right mutual funds. Because the best mutual fund today, may not be the best mutual fund tomorrow or the best mutual fund for a SIP.
You could however pick a top quality fund that has not only performed consistently in the past, but which has delivered strong returns via a SIP as well. How to pick the best mutual fund to invest via a SIP? When picking Analysis on mutual funds and lic fund schemes, you need to analyse the risk-return parameters vis-a-vis other schemes and the quality of fund management.
Not all mutual funds have the wherewithal to perform consistently under varied market conditions. You need to analyse the historical data of returns from large cap funds across multiple periods and market cycles. Shortlist funds that have consistently outraced the market and their peers.
Select the one that matches your risk profile and suitably meets your investment goals. Watch this video on how to select winning mutual funds in a few simple steps: Well, no one has a magic crystal ball that can foretell which mutual fund schemes will top the list over the next decade. There are various aspects within a mutual fund scheme, which are vital for investors to analyse before investing; which are: The past performance of a fund is important.
But, remember that past performance is not everything, as it may or may not be sustained in future and therefore should not be used as a basis for comparison with other investments. And, if the fund has a well-established track record, the likelihood of it performing well in the future is higher than a fund which has not performed well.
Under the performance criteria, we must make a note of the following: Hence, it becomes crucial to compare the fund with its benchmark index and its peers, so as to deduce a meaningful inference. Again, one must be careful while selecting the peers for comparison.
So, it becomes important for them to evaluate the long-term performance of the funds. However this does not imply that the short term performance should be ignored. Besides, it is equally important to evaluate how a fund has performed over different market cycles especially during the downturn.
During a rally it is easy for a fund to deliver above-average returns; but the true measure of its performance is when it posts higher returns than its benchmark and peers during the downturn. Returns are obviously one of the important parameters that one must look at while evaluating a fund.
But remember, although it is one of the most important, it is not the only parameter. Many investors simply invest in a fund because it has given higher returns. In our opinion, such an approach for making investments is incomplete.
In addition to the returns, one also needs to look at the risk parameters, which explain how much risk the fund has undertaken to clock higher returns. The outcome, when different from the expected outcome is referred to as a deviation.
When we talk about expected outcome, we are referring to the average or what is technically called the mean of the multiple outcomes. Further filtering it, the term risk simply means deviation from average or mean return. Risk is normally measured by Standard Deviation and signifies the degree of risk the fund has exposed its investors to.
For example, if two funds have delivered similar returns, then a prudent investor will invest in the fund which has taken less risk i. This is normally measured by Sharpe Ratio. As investors, it is important to know the same because they should choose a fund which has delivered higher risk-adjusted returns.
In fact, this ratio tells us whether the high returns of a fund are attributed to good investment decisions, or to higher risk.
Funds that have a high concentration in particular stocks or sectors tend to be very risky and volatile. Hence, investors should invest in these funds only if they have a high risk appetite. Higher the turnover rate, higher the volatility.Systematic Investment Plan in Mutual Fund is commonly named SIP – is really getting popular in India.
Systematic Investment Plan is such a beautiful tool, which if used properly can help you to achieve all your financial goals. Systematic Investment Plan in Mutual Fund is commonly named SIP – is really getting popular in India. Systematic Investment Plan is such a beautiful tool, which if used properly can help you to achieve all your financial goals.
The classification of mutual funds depends on the investments they carry out. A few mutual funds own stocks and termed as equity funds. Some others own bonds and termed as bond funds or fixed income funds.
Suresh KP i.e. me, have written + articles on this Blog. I love doing analysis on various Best Investment Plans like mutual funds, Stocks, IPO’s, NCD Bonds, Insurance timberdesignmag.com you like our blog, you can share some of the good articles on your Facebook or Twitter.
This would be the BIGGEST gift which you would be giving to us. disclaimer: advice received via this web site should not be relied upon for personal, medical, legal or financial decisions and you should consult an appropriate professional for specific advice tailored to your situation. Mutual Funds are the best tools for long term wealth creation.
Investors in Mutual funds get the twin benefits of diversification and also management of their funds through professionals.