Selecting mutual funds for long-term investments in turbulent market conditions requires careful evaluation of the fund's overall strategy and historical performance. Here are some things to think about:
Evaluating long-term performance
Do not be fixated on a fund’s past year returns. Evaluate the fund’s long-term performance. Look at the fund's performance over a longer period, ideally 5-10 years, to see how it has fared under various market situations. Next, compare fund’s returns to benchmark returns: Examine how the fund's returns compare to a relevant benchmark index (such as the Nifty 50 for large-cap funds). Consistently surpassing the benchmark is a good sign.
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Check for investment strategy
Are you conversant with the investment philosophies of the fund house? Recognize the development and value-adding approach and guiding principles of fund management. Verify that they align with your investing goals and risk tolerance. Analyse the risk control, select funds that have an effective risk management system to lower downside risk. Verifying the fund manager's experience is essential. Verify the experience and performance history of the fund manager. It is best to have a seasoned manager who has experience navigating market cycles.
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There are other aspects to take into account in addition to the previously mentioned ones. Take the fund's expense ratio, for instance. Reduced spending ratios show that a larger portion of your funds are allocated to investment gains. The size of the fund is another crucial factor. Smaller funds may have more room for growth even though larger funds can provide stability.
When returns matter!
Selecting the next fund to add to your investment portfolio can be done in part by comparing fund returns across multiple financial websites. Using a range of criteria, such as returns, to evaluate mutual funds can assist you in making an informed choice.
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Here is the list of top-performing large cap, multi cap and ELSS funds:
Name of the mutual fund | Type of fund | 5-year returns (in %) |
Nippon India Large Cap Fund | Large-cap fund | 94.01 |
ICICI Prudential Bluechip Fund | Large-cap fund | 81.39 |
JM Large Cap Fund | Large-cap fund | 80.78 |
Quant Active Fund | Multi-cap fund | 141.24 |
Nippon India Multicap Fund | Multi-cap fund | 128.22 |
Mahindra Manulife Multi Cap Fund | Multi-cap fund | 113.68 |
Bank of India ELSS Tax Saver | ELSS fund | 116.05 |
SBI Long Term Equity Fund | ELSS fund | 115.88 |
Sundaram Long Term Tax Advantage Fund | ELSS fund | 113.96 |
| Source: AMFI (As on May 22, 2024) | ||
Mutual fund schemes need to be assessed with a fair and impartial methodology that considers both qualitative and quantitative factors. Long-term success in quantitative analysis requires delving into qualitative issues, even though historical performance makes an attractive starting point.
Investors must be aware that past performance does not guarantee future outcomes. However, you can increase your chances of choosing a mutual fund plan that performs well over time, particularly in volatile markets, by considering both long-term results and the fund's investing strategy.
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Published: 23 May 2024, 04:29 PM IST
