Mutual Fund Comparison

Why is there a need to Compare Mutual Funds? Picking the right mutual fund involves understanding different parameters beyond just the price. This comprehensive guide is designed to provide you with the knowledge and tools necessary to make informed decisions on your investment journey with mutual fund comparison.

Select Mutual Funds To Compare

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How to Compare Mutual Funds?

The process of mutual fund comparison is similar to making a strategic business decision. You need to consider various factors:

  • Historical Returns: Look at the fund's track record over different periods. While past performance doesn't guarantee future results, it gives you an idea about the fund's consistency.

  • Expense Ratio: This represents the cost to manage and operate the fund. Lower expense ratios can potentially lead to higher net returns.

  • Risk Profile: Different funds carry varying levels of risk. A fund's risk should align with your risk tolerance and investment horizon.

  • Investment Objective: Make sure the fund's objective aligns with your financial goals.

Why Should You Compare Mutual Funds?

Investing in a mutual fund without comparing it with others can lead to less than optimal results. Just like you would conduct due diligence before making a major business investment, you should compare mutual funds to make informed decisions and select a fund that best meets your financial goals and risk tolerance.

Compare Equity Mutual Funds

Equity Mutual Funds primarily invest in stocks and equities of publicly traded companies. They offer the potential for high growth, but also come with increased volatility compared to debt or hybrid funds. When comparing Equity Mutual Funds, consider the following factors:

  • Fund Category: Equity funds can be categorized based on market capitalization (large-cap, mid-cap, small-cap), investment strategy (growth, value, blend), or sector-specific focus (technology, pharmaceuticals, banking, etc.). Understanding the category can provide insights into the fund's potential risk and return profile.

  • Historical Performance: Although past performance is not indicative of future results, it does give a sense of the fund's consistency and how it has performed during different market cycles.

  • Expense Ratio: The expense ratio represents the cost of managing the fund, which can eat into your returns. Lower expense ratios often translate into better net returns for investors.

  • Risk Level: Equity funds tend to be riskier than debt funds, but the level of risk can vary between different types of equity funds. For instance, small-cap funds might be riskier than large-cap funds.

  • Fund Manager's Track Record: A competent and experienced fund manager can significantly influence the fund's performance. Look at the manager's history, their investment philosophy, and how they've managed the fund during market downturns.

  • Investment Style: Whether the fund follows an active or passive management style can impact its returns and cost. Actively managed funds aim to outperform the market and usually have higher costs, while passively managed funds aim to mimic the performance of a benchmark index and typically have lower costs.

Remember, the right equity mutual fund for you will align with your investment goals, risk tolerance, and investment horizon. Always do your due diligence before investing.

Compare Debt Mutual Funds

Debt funds invest primarily in fixed-income instruments like bonds, government securities, corporate debentures, and money market instruments. They are typically lower risk than equity funds, providing stable but modest returns. When comparing Debt Funds, consider the following key factors:

  • Type of Debt Fund: There are various types of debt funds, including liquid funds, short-term, long-term, gilt funds, corporate bond funds, etc. Each has a different risk-return trade-off based on the maturity period and type of securities they invest in.

  • Credit Quality: Debt funds invest in securities rated by credit rating agencies. Higher-rated securities are less likely to default, but offer lower returns, and vice versa.

  • Interest Rate Risk: Debt fund prices are inversely proportional to interest rate movements. Funds with longer maturity periods are more sensitive to interest rate changes. This is measured by the fund's duration.

  • Yield to Maturity (YTM): YTM is the potential return you could get if you hold the fund until maturity, assuming all interest and principal payments are made as scheduled. A higher YTM could indicate higher potential returns.

  • Historical Performance: While past performance is not a perfect predictor of the future, it can provide an idea of how the fund has managed risk and returns over time.

  • Expense Ratio: This represents the cost of managing the fund. A lower expense ratio is generally better for investors, all else being equal.

  • Fund Manager's Expertise: The fund manager's experience and skill in managing interest rate risk and credit risk can significantly impact the fund's performance.

In conclusion, the ideal debt fund should align with your financial goals, risk tolerance, and investment horizon. Always conduct thorough research before making your investment decision.

Compare Hybrid Mutual Funds

Hybrid funds, as the name suggests, are a blend of equity and debt investments. They aim to strike a balance between risk and returns, offering the potential for growth through equities and stability through debt instruments. When comparing hybrid funds, consider the following factors:

  • Asset Allocation: Hybrid funds can range from being equity-oriented to debt-oriented. Look at the fund's equity-debt ratio to understand its strategy and the kind of balance it offers.

  • Fund Type: There are various types of hybrid funds including balanced funds, aggressive hybrid funds, conservative hybrid funds, and more. Understand the fund type to get a sense of its risk and return profile.

  • Historical Returns: Review the fund's past performance across various market cycles. Remember, past performance does not guarantee future returns but can provide insights into the fund's consistency.

  • Risk Profile: Consider the fund's risk profile in relation to your own risk tolerance. While hybrid funds are generally less volatile than pure equity funds, their risk can vary based on the equity-debt allocation.

  • Expense Ratio: This is the cost of managing the fund. A lower expense ratio can potentially lead to higher net returns.

  • Fund Manager's Track Record: The expertise of the fund manager is crucial in hybrid funds due to the active management of both equity and debt components. Check the fund manager's track record in managing hybrid funds.

Remember, the goal of comparing hybrid funds, like any other mutual fund comparison, is to align the fund's offerings with your investment goals, risk tolerance, and investment horizon.

Common Mistakes to Avoid When Comparing Funds

When comparing mutual funds, be mindful of these common pitfalls:

  • Chasing Past Returns: Remember, past performance does not necessarily predict future returns.

  • Ignoring Risk: Higher potential returns often come with higher risk. Ensure a fund's risk profile matches your risk tolerance.

  • Overlooking Costs: High expense ratios can diminish your returns. Always factor in the costs.

  • Not Factoring in Investment Goals: Always choose funds that align with your financial objectives. The right fund for you depends on your individual goals, risk tolerance, and investment horizon.

Frequently Asked Questions

INDMoney's MF Compare tool is an online platform that helps investors in India compare multiple mutual funds based on various parameters such as returns, risk, portfolio holdings, expenses, and more..The tool is designed to simplify the process of mutual fund selection by providing a comprehensive analysis of different mutual funds in a user-friendly format.`,`The tool then generates a detailed report that compares the shortlisted mutual funds across various parameters, enabling investors to make an informed decision based on their individual needs and preferences.`
Returns: The most common method for mutual fund comparison is just by looking at their respective returns. We have provided both the short-term and the long-term returns for each of the funds. Although, for equity funds comparing returns across the long-term (3 years, 5 years) is generally preferred. Lumpsum return Vs SIP return: Apart from the time period, comparing returns on the basis of the method of investment is also important. Lumpsum return is calculated by comparing the annualized return of the funds whereas the SIP rate of return is calculated by comparing the extended internal rate of return (XIRR). Expense Ratio: The expense ratio is another key metric that shows the amount of annual expense that an investor of a particular fund shall incur. The fund charges this amount from the investors in order to manage the fund on their behalf. Risk Ratios: The returns of a fund alone do not give the entire picture, returns must always be compared with the risks undertaken on investing in a fund. We have explained the various ratios in the below FAQ. Portfolio Holdings: Investors must be aware of a fund’s portfolio prior to investing in them. A fund’s portfolio tells us the exposure of the fund across various sectors, which are the key stocks that form a majority of the fund’s holding as well as the degree of overlap that exists in case you own more than one fund at a time.
Investments being a long-term affair, selecting the right type of mutual fund is imperative. Among the broadly classified types of mutual funds like equity, debt, and hybrid, there are various subcategories that increase the number of choices for investors. Hence comparing mutual funds is the first and most important step in selecting the right investment.
There are various risk measurement ratios that help us to compare the performance of various mutual funds. Alpha: The alpha of a mutual fund describes the fund’s performance in relation to a particular benchmark index it is pegged at. The baseline for alpha is 0. A mutual fund with a baseline above 0 means that the particular fund has outperformed the benchmark. While the same below 0 shows that the fund has underperformed compared to the benchmark index. A fund with 0 alpha means it is performing in line with the benchmark. Beta: The beta shows how volatile a fund is compared to the benchmark index. The baseline for Beta is 1 and funds with higher volatility have a beta higher than 1. While the same less than 1 implies less volatility compared to the benchmark index. Sharpe Ratio: The Sharpe ratio represents the risk-adjusted rate of return for a particular fund. In other words, the Sharpe ratio tells us the ideal return that the fund must generate in relation to the overall risk taken on investing in that fund. A fund with a higher Sharpe ratio is considered better than the one with a lower Sharpe ratio. A negative Sharpe ratio implies that investments that are risk-free have a higher return than the particular fund. Price-to-earnings: The price-to-earnings ratio of a mutual fund is the weighted average price-to-earnings ratio of all the stocks that form part of a fund’s portfolio. Price-to-earnings represents the amount of money that investors are willing to invest in compared to the earnings of a particular company or a mutual fund. This is used to evaluate if a fund is highly overpriced or underpriced compared to other funds. Price-to-book ratio: The price-to-book ratio of a mutual fund is the weighted average of the price-to-book ratios of all the stocks that form part of a fund’s portfolio. The price-to-book ratio compares the market price of a stock to the current book value of all assets held by the company. The P/B ratio of a mutual fund depends on the P/B ratio of the stocks that have a higher holding in the fund’s portfolio. Modified Duration: Duration is for debt funds what beta and alpha are for equity funds. Duration represents the sensitivity of a debt mutual fund in relation to changes in interest rates. If a particular fund has a modified duration of 3 years it means a 1% rise in interest rates shall affect a 3% fall in the price of the debt fund and vice versa. YTM: Yield to maturity of a debt fund gives the expected return of a fund if held till maturity. The YTM of an open-ended fund could be different from the actual return of the fund as there is a constant inflow and outflow of funds in an open-ended fund. Info Ratio: The information ratio of a fund conveys the degree of excess returns that is generated by a fund for risks incurred by the investor relative to the benchmark index. It essentially shows the consistency of a particular fund manager over a period of time. If the info ratio is less than 0.4, it means that the fund manager has not been so consistent in giving excess returns relative to the benchmark index. An info ratio which is between 0.4 and 0.61 is considered good while an info ratio between 0.61 to 1 is believed to be excellent. Standard Deviation:The standard deviation explains the volatility of the fund through which we can assess the risk of the fund. The higher the standard deviation, the higher is the risk of the fund and vice versa.
You can compare mutual funds by clicking on the MF compare option on the Mutual Funds Explore page or on the individual fund details page. You land on the MF Compare page where you can add or delete other mutual funds. You can compare upto four mutual funds at a time.
Comparing mutual funds helps you to understand their historical performance, risk levels, cost structure, and investment strategies. This information can guide you to select funds that align with your financial goals, risk tolerance, and investment horizon.
Comparing debt mutual funds involves looking at the type of debt fund, credit quality of the portfolio, interest rate risk, Yield to Maturity (YTM), historical performance, expense ratio, and the fund manager's experti
When comparing hybrid funds, consider the fund's asset allocation, type (balanced, aggressive, conservative), historical returns, risk profile, expense ratio, and the fund manager's track record.
You can compare the performance of different mutual funds by looking at their historical returns over different periods, such as 1-year, 3-year, 5-year, and since inception.
Expense ratios represent the cost of managing the fund. A high expense ratio can eat into your returns over time. Therefore, it's important to include expense ratios in your comparison to understand the net returns you might receive.
Yes, comparing the expertise, experience, and track record of fund managers can provide insights into their investment philosophy and strategies, which can impact the performance of the fund.
By comparing the risk levels of different mutual funds, you can choose funds that align with your own risk tolerance, helping you manage and mitigate investment risk.
Common mistakes include chasing past returns, ignoring risk, overlooking costs, and not considering your investment goals. Remember, the righ
Investment objectives determine the fund's strategy and the type of securities it invests in. Comparing the investment objectives of different funds can help you find ones that align with your financial goals.