How to Compare Mutual Fund Schemes

Posted On Wednesday, Sep 21, 2022


Investors are spoiled for choice when it comes to choosing a mutual fund scheme to invest in. While the 3 basic categories of equity, debt, and hybrid funds appear to be simple, each of these 3 categories includes multiple sub-categories with several fund houses offering similar types of funds. For many investors, this makes selecting the right mutual fund scheme challenging amongst the plenty floating in the market.

Choosing the right mutual fund scheme is critical for achieving your long-term financial goals. This is where comparing mutual fund returns will assist you in choosing the right schemes to invest in. There are a plethora of funds in the market clamouring for your attention. While the task of choosing a worthy mutual fund scheme may seem daunting, it is not so complex, provided you know the rules.

The initial filter while selecting a suitable fund is to compare the mutual fund returns to gauge which scheme is better in the suitable category. While most Investors only do an initial review at the time of investing in any mutual fund scheme, they forget to keep track of its performance months after having purchased the Mutual Fund units. Keeping track of your investments and checking your mutual fund scheme performance is as important as doing a regular health check-up.

Given that, investing in a mutual fund is indeed a long-term venture, you need to be aware of how your mutual fund scheme is performing during different market phases. The majority of investors consider mutual fund returns as a favourable criterion to measure the performance of funds and also find it convenient to compare them with the market index and other category peers. Notably, the return that a mutual fund scheme generates over a set period is the percentage difference between the start and the end Net Asset Value.

So, let’s have a look at how we can compare mutual fund returns to arrive at the right mutual funds for your portfolio.

1. Compare against the benchmark

The most common way to compare mutual fund returns is to evaluate how the fund has performed against its benchmark.

Do not be satisfied only with the increase in the Net Asset Value (NAV) of your mutual fund scheme; also, compare the performance with its benchmark index. All mutual funds are benchmarked to a particular index, and this information demonstrates how much better or worse the fund has performed vis-à-vis the index.

The benchmark acts as a standard for the fund’s performance. If your fund is outperforming the benchmark consistently, it is a sign that the fund is doing well. Such comparison tells you whether your scheme has outperformed the market or not. Do note that a consistently underperforming fund may have a negative impact on your portfolio.

2. Check the historical data

Now every mutual fund scheme comes with a disclaimer stating that past performance is no indicator of future returns. This information, on the other hand, can be used to see how the fund has performed across different market cycles. Using the consistency parameter to evaluate returns can help you filter your mutual fund selection wisely.

But only analysing the historical data to compare mutual fund returns is not a wise approach as past performance may or may not be sustained in the future. To fairly assess mutual fund performance, it is critical to look at the consistency in terms of generating market-beating returns.

Consistency of returns refers to the scheme providing better returns than benchmark returns across time periods. Between two funds with the same returns over a certain time period, a fund having shown consistent outperformance across periods (say quarterly or annual) will be a better investment as it exhibits the fund’s potential to generate significant alpha for investors.

3. Compare with the peer funds

Next, you can also compare the average return on mutual funds during a specific time frame with its category peers. The Category Average is the average of returns generated by all mutual funds in a certain category over a certain period. When you invest in an actively managed fund, you are not only trying to outperform the index but you expect your fund to even outperform the peer funds in that category, in terms of returns.

Bear in mind that don’t compare apples to oranges. For example, if you have invested in Large Cap oriented mutual fund scheme, compare its performance with only other large-cap peers and not with any mid-cap biased scheme. Similarly, don’t compare the performance of Debt Funds with Equity Funds.

You may consider a small list of comparable peer funds within the same category for comparison of their performance. Moreover, the time period used to compare and analyse returns must be the same.

When comparing equity mutual fund returns, you may consider their performance over the last 5 to 10 years, as equity funds are known to offer significant returns in the long term. Similarly, when comparing debt funds, you may consider a return timeframe of 3-5 years; for liquid funds, evaluate fund returns from the previous 6 months to 1 year.

While you can shortlist the fund which has shown consistent performance across different time intervals, also evaluate the risk factor and volatility associated with the fund. Ratios like Sharpe, Sortino, and Treynor help you calculate the risk-adjusted returns generated by the fund and tell you which fund is efficient in terms of generating  alpha at a reasonable level of risk. Higher the Sharpe, Sortino, and Treynor ratio of a fund, the better it is.

Prudent comparison of mutual fund returns aids investors in selecting the right mutual funds capable of meeting their investment goals.

Thanks to technology, you can now quickly compare the returns of your mutual fund scheme by using the free mutual fund screener tools offered by certain investment and finance portals.

Sophisticated mutual fund screeners use various filters based on the fund category and the benchmark performance and help you spot the mutual funds capable of generating alpha at a lower risk. This makes it easier to shift through the confusion and find the ideal mutual fund scheme to build a robust portfolio.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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