04 May Investing in best mutual fund
Hindsight is 20/20. Choosing a mutual fund purely based on its short term performance is risky. Mutual fund’s fees, downside risk, consistency of performance are some of the important factors investors should consider before its purchase.
A consistent, steady performing fund over a long duration is what investors should seek.
What are your investment objectives, how long you plan to hold the mutual fund, and how risk averse are you are some of the questions you as an investor should have answers to.
Fund manager’s consistent past performance relative to his/her peers, versus sector benchmark, fund’s volatility, its risk adjusted performance, fund’s expense ratio are some of the critical information investors should care for.
Technical Details – know Fund’s Alpha, Beta, and Sharpe Ratio!
Fund’s Alpha (its excess return over benchmark index – e.g. alpha of 5% means it has outperformed its benchmark by 5% for the investment period), it’s Beta (its volatility compared to its benchmark – e.g. beta of 2, it means that for every 10% upside or downside of benchmark, the fund’s value would be 20% in the respective direction). Fund’s Sharpe Ratio (its excess return over return given by a risk-free investment divided by its volatility or standard deviation- higher the Sharpe Ratio, the better the risk-adjusted return is).
At N2I, we search for consistently high return performing mutual funds over a long duration, minimize risk you will take, keeping low fees for the funds so you grow your wealth consistently.