8 Key Factors to compare while selecting a Mutual fund 🔎 A detailed 🧵

1) The Fund Characteristics 

Before investing in any fund, you must first identify your goals for the investment. For long term goals like goals which have a horizon more than 5 years, one can take equity exposure but for short & medium term goals, you should stick to debt plans

2) Performance vis a vis Benchmark

A benchmark is basically the index which acts as a yardstick to evaluate the relative performance of your scheme in relation to the market average. 

You need to find out whether the fund is able to beat the benchmark consistently or not.

3) Compare the performance with peers

You also need to compare the target fund with other schemes from the same category. Like a large cap fund should be compared with other large caps

If your scheme is unable to beat its peers consistently, then the fund is not worth investing

4) Expense ratio

It is the cost the fund house charges from investors to provide management services to investors.

The expense ratio directly affects your returns. Therefore, it is necessary to check for expense ratios across funds in the same category. 

Lower ratio is better

5) Holding of the funds

Check the underlying securities and asset or sector allocation to ensure whether matches with your risk profile or not.

6) Investment Strategy

You also need to check whether the fund believes in "Buy & Hold" Strategy or follows active churning. You can determine this by looking at the turnover ratio of the scheme. 

Ideally a low turnover ratio is always advisable.

7) Riskiness

According to the investment thumb rule, higher risk needs to be rewarded with higher returns. But this aspect may not be evaluated only by looking at returns.

Thus, you need to use a better measure for comparing two funds on the grounds of risk-adjusted returns.

For example Alpha tells you how much extra return will the fund generate over and above the underlying benchmark. 

A higher Alpha is always better.

8) Fund House & Fund Manager

One needs to evaluate the track record of the scheme by considering the number of years of the scheme’s existence and fund house existence.

Also, evaluate the fund manager’s years of experience and performance across all funds they manage.