![]() The fund having Sharpe ratio higher than the category average shows that the fund manager delivered higher returns for the extra risk taken.Ĭonsider two equity funds A and B having a standard deviation, i.e. Using the Sharpe ratio helps to ascertain whether the fund is giving higher returns on every additional unit of risk taken. ![]() The risk is measured with the help of standard deviation. As per risk-return tradeoff, a higher degree of risk should be compensated by a higher level of returns. Instead of looking at just annualised returns, look for risk-adjusted returns of the fund. Look for index funds that fit your budget - these are relatively cheaper and deliver returns equal to the underlying benchmark returns. If returns delivered by your expensive fund are not in line with the amount of fee charged, you may try passive investing as well. Investing in direct plans of mutual funds, instead of regular plans, can save you loads on commissions. Direct plans of mutual funds come at a lower expense ratio which translates into higher returns. The same mutual fund is available as a direct plan and a regular plan. Always look for a fund that offers similar returns at relatively lower expense ratio. So, the higher the expense ratio, the lower would be your take-home returns. ![]() You need to check the expense ratio of mutual funds before finalising on a given fund.Įxpense ratios are charged out of the fund returns. As per SEBI guidelines, the fund houses cannot charge more than 2.5% of the fund’s average asset under management (AUM). Compare Fund Expense RatioĮxpense Ratio is the annual fee charged by the fund for managing your investment. Moreover, during a slump, if it lost 8% returns while the benchmark lost 10% returns, then the fund has done well. Suppose a fund has delivered a performance in line with the expected returns consistently during a market rally is a good one. Compare fund performance across different time intervals and business cycles. Look for a fund that has a relatively longer fund history say 5 to 10 years. Compare Fund historyĪ mutual fund’s real worth can be understood only during unfavourable market phases, and a fund history can validate that. Compare its performance with a broad-based index like Nifty 50. Let’s take the case of a Large-Cap Equity Fund. Using the wrong yardstick will only give misleading data. It should always be an apple-to-apple comparison. When you compare, use a fair and appropriate benchmark. You may start by comparing the performance of a fund against the benchmark. Compare Mutual Fund Performance against a Benchmark
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