Mutual funds’ benefits are getting more noticeable and hence it has sparked a bit of talk. One must know the pros and cons of any investment to make a wise decision. Mutual funds are professionally managed, give high returns, and are low-cost investments. It has a diverse asset allocation and various types of mutual fund schemes are available for all kinds of investors. Whether you are a seasoned investor or a first-timer, risk-tolerant or risk-hesitant, you can choose the right fund for yourself among a plethora of schemes.
As per the SEBI guidelines the companies are classified and when sorted by market capitalization:
Large-cap — companies ranked between 1 and 100.
Mid-cap — companies ranked between 101 and 250.
Small-cap — companies ranked beyond 250.
Its better to avoid Thematic funds, Hybrid funds, Flexicap and Focused fund for a new beginner.
When it comes for large cap only 10% of them are able to beat the index index hence its better that we invest on index funds when it comes for large cap.
Choosing the Index funds is easy with tickertape filtering on basis of following things as lesser as possible
- Expense ration
- 2. tracking error
Choosing mid cap and small cap will be easier while considering following things
- Asset under management
- Expense ratio
- 5 year average rolling return
- >15% Returns probability
- 5 year upside capture ratio
- 5 year downside capture ratio
Asset Under Management
Asset under management(AUM) is the total market value of the investments that a mutual fund company manages on behalf of clients.
Its always better that AUM of a fund should be in range of 1,000 Cr — 10,000 Cr its easy to check that with the free tool tickertape.
Expense Ratio
Expense ratio explained in short is the service fee charged by the fund managing company for fund which they manage on behalf of us.
Once you have filtered the mutual funds with AUM choose them based on you interest with lowest expense ratio.
5 year average rolling return
If suppose we want to see the 5-year return of a fund over the last 10 year period between 2012 to 2022. So, the rolling return would mean calculating the 5-year return on each day during this period.
Pick a fund on which you need to find the average, then go to advisorkhoj and provide the details of the fund.
The fund I took for an example is SBI Small Cap fund the average of the fund we chose should be greaten than Equity Small Cap.
>15% Returns probability
This is nothing but the probability of the returns we get for more than 15%.
In the same table towards right you could see the probability of returns getting more than 15%.
5 Year Upside Capture Ratio and Downside Capture Ratio
Upside capture ratio measures a strategy’s performance in up markets relative to an index. A value over 100 indicates that an investment has outperformed the benchmark during periods of positive returns for the benchmark. Downside capture ratio measures a strategy’s performance in down markets relative to the index
The value can be found out from morningstar and the green colour indicates if the value is good.
Are Mutual Funds a Good Investment?
Mutual funds are a good investment for investors looking to diversify their portfolios. Instead of going all-in on one company or industry, a mutual fund invests in different securities to try and minimize your portfolio’s risk.
What Are Some Disadvantages of Mutual Funds?
Mutual funds take control out of an investor’s hands — instead of picking the companies you want to invest in, you’re often limited to what a money manager thinks is best. There are also ongoing management fees associated with mutual funds that may be more expensive than brokerage companies offering low-cost or no-cost individual stock trades.
Are Mutual Funds Safe?
Like all other securities, mutual funds are investments that are subject to losses. However, the goal of a mutual fund is to reduce investment risk, so mutual funds can often be less risky than other types of investments due to its diversification.
