Comparing Mutual Funds

Whenever we think about investing in mutual funds, the first question comes up - which fund? It requires a lot of study and comparison before you can pick up the right fund. Otherwise, you can take professional help to determine the best or best set of funds. But still the question remains, how do the professionals choose their funds.
The most popular method to choose a fund is to believe that past performance of a fund will repeat. So we study the past performance of lots of funds and find out the best risk adjusted returns. We do go to various sites to look for long term (3 yrs or 5 yrs) returns only to find various values in different websites. Oh yes! they handle the data in their own style and land up in a value which is far from understandable by a common man. The other method is to trust the star rating of the various evaluators and invest according to their suggestion - only to find the star rating has changed in next three to six months. So what do we do?

IT'S BETTER TO AVOID NEW FUND OFFERS
1. Follow star rating from a single source e.g. a single website for all Mutual Funds. This will give you at least a common approach.
2. Select first five from a category of funds, you wish to invest in. Like Equity type, Income / debt type or Balanced type etc.
3. Compare their investment focus viz, largecap / midcap / smallcap.
4. Compare their size. Avoid very small funds for example up to 300 crore.
5. Compare their beta, standard deviation and expense ratio. Choose the one having nearer to 1 beta, less standard deviation value and lowest expense ratio. Be prepared to trade off here - for example - better expense ratio for higher standard deviation.
6. Relative returns may also be considered.
7. Keep a vigil on the ranking,returns, expense ratio of the fund from the same source or website every three months. Switch funds if you find deterioration in consecutive two quarters.

Hope this help you to select the right funds. Happy investing!

Optimize Tax utilizing mutual funds

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FMP - Attractive offer now

Fixed maturity plans, or FMPs as they are popularly called, are close-ended funds with a fixed tenure and invest in a portfolio of debt products whose maturity coincides with the maturity of the product.

The primary objective of an FMP is to generate income while protecting the capital by investing in a portfolio of debt and money market securities. The tenure can be of different maturities, ranging from one month to five years. FMPs are effectively like bank fixed deposits, but one that has a lower tax incidence. This entails a good difference in net maturity value.

The advantage of investing in FMPs is that they have less risk of capital loss than equity funds due to their investment in debt and money market instruments. Apart from this, FMPs are not affected much by interest rate volatility when held till maturity. The return on these funds is indicated and is close to the actual returns. If you are not a risk-free investor and look for an assured income, this is the right option for you.