How to Review a Mutual Fund in Just 5 Mins?

25 October 2023
3 min read
How to Review a Mutual Fund in Just 5 Mins?
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One of the most critical aspects of money management is reviewing Mutual Funds before engaging your money in any funds.

The tricky part of assessing a Mutual Fund is knowing how to approach the process. Therefore, you should take a few fundamental actions while reviewing a Mutual Fund. 

These Mutual Fund evaluation stages, if properly followed, will significantly aid in assisting you in identifying the finest Mutual Fund to place your investment in and may also reveal some intriguing financial chances that were previously out of your sight.

This blog will examine the Steps to review a Mutual Fund in just 5 mins.

Steps to Quickly Review a Mutual Fund

The following are the Steps to review a Mutual Fund in just 5 minutes quickly-

Step 1: Establishing Your Investment Goals

A set of investment objectives determines an investor's investment decision. Additionally, an investor's time horizon and risk tolerance have a role in choosing an investing aim.

For example, your investment goals could vary from seeking a high rate of return on your savings, diversifying away from fixed deposits, and saving up to a plan of retirement or marriage. This helps in determining your risk appetite. 

Step 2: Utilizing the Benchmarking Process

Benchmarking is evaluating a fund's performance against a set of criteria. It acts as a benchmark when compared to the peer markets of the funds.

Regardless of your investment objectives, benchmarking enables you to evaluate the performance of your mutual fund investment compared to industry peers. 

Step 3: Comparing with Peers of the Same Category

Your mutual fund's effectiveness in the same category is determined by its performance compared to its competitors. Therefore, mutual funds want the highest rating in the fund industry.

Therefore, it is suggested to use comparable peer performance to maximize the value of the allotted time for value learning.

Step 4: Investigating the Risk-Adjusted Returns of the Fund

Risk-adjusted returns are the computed returns on assets about the risk indicated throughout time.

The lower-risk funds have higher Risk-Adjusted Returns whenever different mutual funds that have a comparable percent of return over an identical period are compared.

Step 5: Calculating the Expense Ratio of the Fund

The Expense Ratio is the proportion that the fund house deducts from your investment as a fee for managing your funds. Therefore, the expenditure ratio should be as low as possible.

The expense percentage is often lower for ‘Direct’ investments made through a mutual fund than for ‘Regular’ plans when investments are made through a broker or investment advisor.

The benefit of a decreased Expense Ratio might be substantial when accumulated over several years.

Step 6: Studying the Fund's Lock-In Period

The lock-in period is an additional significant consideration when examining mutual funds.

The lock-in time for ELSS, for instance, is three years. Therefore, these funds might not be appropriate if you plan to withdraw (or redeem) your investment within the following 12 months.

When examining mutual funds, remember to keep your investing aim in mind.

Step 7: Analyzing the Risk Profile of the Fund

Knowing your risk tolerance will make choosing the best mutual fund much simpler for you.

To ensure you are assuming the appropriate level of risk, you should be familiar with the scheme's risk profile. For example, bond or Debt Funds are suitable for investors with low to moderate-risk appetites.

In contrast, equity funds are excellent for individuals with a moderately high to high-risk appetite.

Step 8: Checking the Exit Load of the Fund

Along the same lines, certain funds could charge an Exit Load, an extra price for withdrawing your money before a deadline.

Funds with low to nil exit loads are typically preferred since they may provide withdrawal flexibility.

Conclusion

Although choosing a mutual fund may seem complicated, it may be made simpler by researching and knowing your goals.

Furthermore, your chances of success will rise if you perform this due research before choosing a fund.

Finally, you may consider mutual funds in the larger context of your investment portfolio now that platforms like Groww have made investing simpler than ever.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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