Source: IRIS (27-FEB-12)
Most of our clients have been investing for the last 15 years, since mutual funds have been in existence.
What is it that really makes one invest in one fund and not in the other?
There are many parameters as listed below:
Profile and experience of fund managers and management history. This data shows the past performance, profile, rating and experience of fund managers to handle funds in different market conditions, along with promoter details and management philosophy.
This is one of the most primary indicators of fund selection. This identifies the investment category and risk grade an investor is willing to take based on his time horizon of goal achievement.
This measures the risk adjusted return on a fund. It is the excess return per unit of risk an investment is able to generate. It is measured as S=(Rp-Rf)/Ïƒ, which is the Return of a portfolio- Risk free Return/ Standard Deviation.
Measures the returns earned in a portfolio in excess of returns earned in a riskless investment, per unit of market risk. T= (Average Return on the portfolio- Average Risk Free Return)/Beta of the portfolio.
This measures the excess return a fund is able to generate relative to the benchmark index.
This is a measure of volatility or systematic risk of a portfolio in comparison to the market as a whole. A Beta of 1 indicates, the price will move with the market. A Beta of more than one indicates, the price will be more volatile than the market, that is, if a stocks beta is 1.2, it means that the stock price is 20% more volatile than the market. And if the Beta is less than 1, it means that price will be less volatile when compared to the market.
Sectors of investment:
This is crucial to identify stock selection, since sectors mark the broad underlying selection criteria of specific stock selection.
This is a useful tool to understand, the costs incurred in churning a portfolio. Larger the Asset Size, more difficult and expensive to make changes and trading calls on the portfolio and vice versa.
These are the costs incurred by a fund management company to manage a fund and deliver performance to the investor.
There are other minor classifications like Equity/ Debt Allocation, Credit rating, Dividend yields, which go into deciding the right fund to invest in.