Return vs Risk?
Consistency of Returns is extremely important. You should not look at returns for the last few months to make your investment decision. A fund which is consistently giving you returns has a higher chance to deliver good returns in future.
Mutual Funds report daily Net Asset Value (NAV). If for example the NAV on Day1 is 11 and after 1 year is 12, annual return would be 9% ((12-11)*100/11).
You should look at last 1yr, 2yr and 3year returns before investing into a mutual fund
Risk is as important as return. Risk profile of a fund is mentioned in the scheme document and it should be in tune with the fund’s objective. This is declared by the fund house at the time of launch of fund.
There are 5 categories of risk profile namely: Low, Moderately low, Moderate, Moderately high, High.
Once the fund is launched, risk is usually measured in terms of fluctuations in returns called standard deviation. The lower the fluctuation the better it is.
For example if it is a small cap fund with a higher potential of return, the risk would be higher. However if it is a balanced fund or a debt fund, the fund should have lower risk. This data is published on a monthly basis by mutual funds and is freely available on fund house’s website.