5 Ways to Measure Mutual Fund Performance
A mutual fund in India is a type of investment vehicle that pools money from a large number of investors to purchase a diversified portfolio of stocks, bonds, and other securities. The fund is managed by professional fund managers who use the pooled money to make investments on behalf of the investors. In fact, the secret behind top-performing mutual funds in India is the expertise of the fund manager. The returns generated by the fund are then distributed among the investors in proportion to the number of units they hold in the fund.
There are various types of mutual funds in India, such as equity funds, debt funds, and balanced funds, each with different investment objectives and risk profiles. Equity funds invest primarily in stocks, while debt funds invest primarily in bonds and other fixed-income securities. Balanced funds invest in a mix of both stocks and bonds, providing a balance of growth and income.
Investing in a mutual fund in India is relatively easy and accessible to retail investors however selecting one of the best performing mutual funds in India requires some homework. Mutual funds can be purchased through financial institutions such as banks and investment firms, and they can also be purchased online. Additionally, mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI), which provides oversight and protection for investors.
Measuring the performance of mutual funds in India is crucial for investors to determine if the fund is meeting their investment goals. Total return, risk-adjusted return, STAR rating, Beta, and expense ratio are the five most used methods to evaluate the performance of mutual funds in India. It's important for investors to understand and use these methods to make well-informed investment decisions.
- Total Return: The total return of a mutual fund in India is calculated by taking into account the change in the fund's net asset value (NAV) and any dividends or distributions paid out to investors. This includes both capital gains and income earned by the fund over a certain period of time, such as a year or a quarter. It is a widely used measure of performance for mutual funds in India.
- Risk-Adjusted Return: Risk-adjusted return is a measure of a fund's performance that considers the level of risk the fund has taken on. It is calculated by dividing the fund's return by the amount of risk taken on. This helps investors compare the performance of different funds that have taken on different levels of risk. It is an important metric for investors to evaluate the performance of mutual funds in India.
- STAR Rating: STAR (Short-term Accrual Rating) is a rating system developed by CRISIL, one of the leading rating agencies in India. It assigns a rating to mutual funds based on their past performance, taking into account factors such as risk, expense ratio, and manager tenure. Funds are assigned a rating of one to five stars, with five stars indicating the best performing mutual funds in India.
- Beta: Beta is a measure of a fund's volatility in relation to the market. It is calculated by comparing the fund's returns to the returns of a benchmark index such as Nifty or Sensex. A beta of 1 indicates that the fund's returns move with the market, while a beta less than 1 indicates lower volatility, and a beta greater than 1 indicates higher volatility. It helps investors to understand the fund's volatility compared to the market which helps in selecting the best performing mutual funds in India.
- Expense Ratio: Expense ratio is a measure of a fund's operating expenses as a percentage of the fund's assets. It is calculated by dividing the fund's operating expenses by the average value of its assets. A lower expense ratio indicates that the fund is more cost-efficient and therefore more attractive to investors and may end up becoming the top performing mutual funds in India. It is an important metric for investors to evaluate the performance of mutual funds in India.
There are a variety of mutual funds available in India. Different investors tend to invest in variety of mutual funds according to their needs and preferences. However, in general following are some of the characteristics of top performing mutual funds in India.
- Diversification: Best performing mutual funds in India have a diversified portfolio of stocks and bonds across various sectors and industries. This helps to spread risk and minimize the impact of any stock or sector performing poorly.
- Strong Fund Management: Top performing mutual funds in India are managed by experienced and skilled fund managers who have a deep understanding of the markets and the ability to make sound investment decisions.
- Low Expense Ratio: Top performing mutual funds in India have a low expense ratio, which means that they have lower operating costs and therefore more money is available to be invested in stocks and bonds.
- Long-term track record: Best performing mutual funds in India have a long-term track record of delivering consistent and strong returns to investors.
- Active management: Top performing mutual funds in India have active management, which means that the fund managers are constantly monitoring the market and making changes to the fund's portfolio as necessary. This helps to adapt to market changes and improve the fund's performance.
- Risk management: Top performing mutual funds in India have a risk management framework in place to minimize the risk and to keep it at an acceptable level.
It can a bit of a challenge to select the mutual fund an investor would like to invest in. Mutual fund managers are well aware of the top performing mutual funds and study the client’s needs and requirements and make a relevant investment. There are many mutual funds in India that have performed well in recent years. Some of the top performing mutual funds in India include:
- HDFC Equity Fund: This fund has a consistent track record of delivering strong returns to investors. It invests primarily in large-cap stocks and has a diversified portfolio of companies across various sectors.
- ICICI Prudential Bluechip Fund: This fund has also performed well in recent years, with a strong focus on large-cap stocks and a diversified portfolio. It has consistently delivered above-average returns to investors.
- SBI Bluechip Fund: This fund has a long-term track record of delivering consistent returns to investors. It invests primarily in large-cap stocks and has a diversified portfolio of companies across various sectors.
- Kotak Standard Multicap Fund: This fund has a strong performance over the past few years, thanks to its diversified portfolio and focus on high-growth companies across various sectors.
- Aditya Birla Sun Life Frontline Equity Fund: This fund has been consistently delivering above-average returns to investors, thanks to its focus on large-cap stocks and a diversified portfolio of companies across various sectors.
It's important to note that past performance by top-performing mutual funds in India is not indicative of future performance and investors should also consider other factors such as the fund's management and investment strategy before making a decision to invest. It's also recommended to consult a financial advisor or professional before making investment decisions.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.