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Topic : Personal Finance
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By : varsha, technical manager(QMS)
Activity:  6 comments  422 views  last activity : 07 06 2010 20:18:04 +0000
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3 Easy Steps for Analyzing A Mutual Fund

Posted By - IndianMoney.com

Step 1: Find out whether the scheme matches one’s investment objective. It is important that the scheme’s philosophy matches your investment philosophy. For instance, if your investment style is conservative, the fund manager’s investment approach should be conservative or vice versa. Or, if you prefer to invest in growth stocks, your ideal choice would be investing in equity growth funds.
 
Step 2: After identifying a fund compare the same with its peers or relevant benchmark. For example if your equity fund (index) has given a return of 20% find out how much Sensex has given in the same period. Also compare this fund’s performance with other similar equity funds investing in similar companies.
 
It is very important to find out the right category of the fund. For example if the fund invests only in mid caps, its right benchmark will be BSE Mid Caps and right peers will be funds that also invest only in mid caps and NOT those which invest in large caps or small caps.
 
Step 3: Moreover, analyze the performance of fund over a longer period of time i.e. how much return the fund gave in the last 5-yr, 1-yr and 3-months. Simply do not go by its performance in the last 1 month or the last 3 months. Prepare a small table (given below) to analyze the historical returns. These data are publicly available and does not require much effort to collect. 

 

Fund Name
5-Year Return
1-Year Return
3-Months Return
1-Month Return
Average Return
Fund 1
32%
29%
26%
45%
30%
Fund 2
8%
11%
4%
100%
7%
This table will help you find out whether “high and good” returns from the funds are one-time event or a consistent event. You can also compare your fund with its peers and find out other better options. A consistent return is a MUST before you invest in the fund. DO NOT invest in a fund (e.g. Fund 2) that just gave a very high return last month but have no history of good performance or a fund where everybody including your family and friends are investing. In the above example Fund 1 is better than Fund 2 because it has consistently given high return for the last 5 years. However, Fund 2 has delivered very high return only in the last 1 month. Thus, you as an investor must invest in Fund 1.
 
Follow these small three steps to identify the best mutual funds to grow your wealth.
 
 Top Comment : Viktor Stephen   | 06 29 2009 17:30:01 +0000
Elementary Dr.Watson! (read Varsha) Expected something more substantial and creative from you.
 
6 comments on "3 Easy Steps for Analyzing A Mutual Fund "
  Commented by  Ankit Gandhi, MBA student, Omegan School of Business    | 08 06 2009 10:03:22 +0000
Rating : +1 
Mutual Fund is the only instruments which will provide liquidity, less risk, better diversification at a lower cost because of lot of experts are include in it.So, in My point of view the three steps should be Diversification, Liquidity, Return which will help you out in any comparative schemes of the mutual fund.
  Commented by  srinivas kotteti, Customer Support Engineer/Technician, escort construction equipment ltd    | 07 02 2009 03:01:09 +0000
Rating : +1 
very good  lot  of tthanks 
  Commented by  pradip dagra, computer operatorAccountant,    | 07 01 2009 12:58:50 +0000
Rating : +1 
you will be PM of india.
  Commented by  Padmanabhan R, Finance student    | 06 29 2009 18:07:40 +0000
Rating : +1 
Mutual Funds offer effective diversification and professional expertise at a considerably low cost. Though not tailor made they offer a variety of schemes and the investor should go for the one that matches his financial goals. While analyzing the performance the use of a proper benchmark is vital. 
Though while analyzing mutual fund options the most recent year is given thoughtful consideration, investor should never ignore history.  Especially as the fund manager’s compensation is linked to the performance, they may be tempted to show good short term results. Big funds usually have an advantage when cost is considered. Investors should avoid funds started when the stock market was at it’s pinnacle.
Though a good investment option, there are no guaranteed returns. Hence every mutual fund investor should follow these steps.
  Commented by  Viktor Stephen, COO, Business Mashup/Partner Get.Next.Job    | 06 29 2009 17:30:01 +0000
Rating : +1 
Elementary Dr.Watson! (read Varsha) Expected something more substantial and creative from you. 
  Commented by  Mangala Shetty, Project coordinator    | 06 29 2009 11:58:00 +0000
Rating : +1 
Thanks a lot versha.. this is very helpfull information
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