Nine factors to keep in mind while investing in mutual funds scheme

Everyone wants to invest in the best mutual fund, but it becomes a challenge for an investor to find a mutual fund that will give a good return as it varies from one investor to other depending on various factors. In order to find the best mutual funds, the funds should be selected depending on investors’ risk profile, investment objective, and duration.

The mutual funds’ fact sheet is available on the website of all mutual funds and contains all the details about the funds to make an informed decision.

1.  This investment objective must be checked on the mutual fund’s fact sheet. It will indicate the asset class, geographies where the funds have been invested, the kind of returns it will generate, and the time horizon.

2. Check the risk-o-meter. It indicates risk level of the mutual funds scheme, if a fund is right or wrong for the investor.

3. Check the fund’s exposure to debt or equity and cash balance available. And make sure to make a note of the financial fundamentals of the scheme

4. Check the company-wise allocation and sectoral allocation. It  gives an idea of whether a fund is diversified or concentrated

5. Standard deviation will let an investor know of the volatility of returns. A higher stndard deviation means greater volatility

6. Beta measures the volatility of the fund when compared to its benchmark index. If the beta is less than 1 means it means less volatile, if it is more than 1 it means more volatile.

7. Alpha is a measure of extra returns earned by the funds when compared to benchmark returns,

8. If two funds offer the same returns then a sharp ratio can help an investor pick the right mutual fund. It provides a value of risk-adjusted returns on the fund.

9. Check portfolio turnover ratio. It is a measure of percentage change in funds holding.