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These indicators will help you choose the right mutual fund scheme to invest in

Usually low PE indicates value investing style while high PE means growth investing. The former works well in a bull run, the latter in a bear market

, ET Bureau|
Dec 11, 2017, 06.30 AM IST
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Sharpe ratio shows the return per unit of the total risk taken by a scheme.
Sharpe ratio shows the return per unit of the total risk taken by a scheme.
Knowing these fund profile indicators and understanding their relevance will help you invest wisely.


I.APPLICABLE TO ALL FUNDS

A.Sharpe ratio

What it is
This ratio shows the return per unit of the total risk taken by a scheme.

Its relevance
A higher value is good as it means that returns are commensurate with risk.

Funds with the best risk-reward profile
ICICI Pru Very Aggressive Plan: 1.46
SBI Small & Midcap: 1.39
Mirae Asset Emerging Bluechip: 1.35
Escorts High Yield Equity: 1.28
L&T Midcap: 1.20

B.Total risk (Standard deviation)

What it is
Computed based on how much a fund’s returns veers from its average return and, thus represents the fund’s total risk.

Its relevance
Lower the risk, the better it is.

Funds with the highest risk
Kotak World Gold Fund : 36.89
DSP BlackRock World Gold Fund: 33.30
Kotak PSU Bank ETF : 32.09
Reliance ETF PSU Bank BeES : 32.05
DSP BlackRock World Mining Fund : 28.73

C. Exit load

What it is
The amount deducted by a fund when you redeem your investment before a stipulated period.

Its relevance
A lower exit load is better because it is is deducted from your corpus. However, a higher exit load may not necessarily be bad, as it deters investors from prematurely redeeming their investment.

Funds with the highest exit load
BOI AXA CorpCredit Spectrum: 4%
Franklin India Corp Bond Opp: 3%
Franklin India Income Opp: 3%
Franklin India Dynamic Accrual: 3%
SBI Corporate Bond: 3%

D.Total expense ratio

What it is
Total expenses charged by a scheme in a year.

Its relevance
The lower the expense ratio, the better it is because expense ratio brings down your annual returns.

These funds charge you the most
Mahindra MF Badhat Yojana: 3.40
Mahindra MF Dhan Sanchay Yojana: 3.28
IDBI Prudence Fund: 3.15
Baroda Pioneer Large Cap: 3.15
IDBI Midcap Fund: 3.11

II. APPLICABLE ONLY TO DEBT FUNDS

A. Credit rating profile

What it is
It indicates the quality of the instruments a debt fund invests in. While government securities are risk free, corporate bonds vary from highest safety (AAA) to default (D).

Its relevance
The higher the rating, the safer it is. But some funds take on higher risk and invest in low rated—A or below—bonds to gain from the higher interest offered by these bonds.

Funds with highest exposure to low rated bonds
Franklin India Corporate Bond Opportunities: 65.37%
Indiabulls Income Fund: 62.9%
Franklin India Dynamic Accrual: 60.90%
BOI AXA Corporate Credit Spectrum: 57.18%
Franklin India Income Opportunities: 51.55%

B. Average maturity

What it is
It is the weighted average maturity of a debt fund's holdings.

Its relevance
Funds with high average maturity are more sensitive to interest rate changes. They generate better return when rates fall, and slide more when interest rates rise.

Schemes with the longest maturity
ICICI Prudential Long Term Gilt: 23 years
HDFC Gilt Fund Long Term Plan: 13 years
Invesco India Active Income: 13 years
Aditya Birla Sun Life Dynamic Bond: 16 years
Invesco India Gilt: 15 years

III. APPLICABLE ONLY TO EQUITY FUNDS

A. Portfolio valuation (PE ratio)

What it is
The weighted average price-earnings ratio of the stocks in a fund’s portfolio.

Its relevance
Usually low PE indicates value investing style while high PE means growth investing. The former works well in a bull run, the latter in a bear market

The least expensive funds
Templeton India growth: 23.12
Templeton India Equity Income: 23.32
Invesco India PSU Equity: 23.78
HSBC Dynamic: 25.18
UTI Top: 10025.19

B. MARKET RISK(beta)

What it is
Beta measures a fund's sensitivity to market movements.

Its relevance
Beta less than one means the fund is less impacted by market movement. More than one means, it rises or falls more than the market.

Funds with highest market risk
JM Core 11: 1.35
Kotak PSU Bank ETF: 1.33
Reliance ETF PSU Bank BeES: 1.33
HDFC Infrastructure: 1.32
HDFC Premier Multi-Cap: 1.23

C. ALPHA

What it is
It measures the excess return generated by a scheme compared to its benchmark index.

Its relevance
Like other riskadjusted return ratios, the higher the alpha, the better it is.

Funds with the highest alpha
L&T Emerging Businesses: 17.39%
DSP BlackRock Natural Resources and New Energy: 16.65%
Aditya Birla Sun Life Small & Midcap: 16.50 %
SBI Small & Midcap: 20.67%
Mirae Asset Emerging Bluechip: 15.61%

Note
You can find these statistics in mutual funds’ fact sheets or on the websites of organisations which track mutual funds.
Expense ratio as on 30 Sep, rating and average maturity as on 31 Oct. All other data as on 21 Nov.
Source: Value Research

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