How to select a fund?
There are various funds’ parameters apart from Risk and Return that you should keep in mind before picking your ideal fund.
Fund Charges are the expenses incurred by fund houses to run the fund. It usually includes management fees, admin charges, commissions, etc and is denoted as Expense Ratio.
If you have to pick between two funds with equal returns and different expense ratios, you should pick a fund with lower expense ratio. For example, if a fund is generating a return of 15% and expense ratio is 3%, you will effectively get a return of 12% (15%-3%).
Fund size generally indicate investors’ confidence into a mutual fund. It is usually denoted by Assets under management (AUM) and we should invest into a fund whose AUM is on an increasing side.
Mutual funds report their AUM and holdings on a monthly basis. This data is available on AMFI (https://www.amfiindia.com/) as well as on fund house’s website.
Peer analysis and comparison to the benchmark will help you pick the best fund within a sector.
For example, if you have chosen a mutual fund that invests in large cap, then you can compare the returns of the fund with the benchmark which is Nifty 50.
Benchmark is a point of reference that tells you how a mutual fund has performed against its peers and the market. It is highly desirable when a fund is able to consistently outperform its benchmark.