Know How to Compare Mutual Funds before Investing

Investing in mutual funds can be tricky and lead to a lot of confusion at times. But, the process of investing is not at all complex if you know how to choose the right mutual fund. All you need to do is to compare the mutual funds. Read on to know more.

Track the Returns

Before you make an investment, try and track the returns obtained as it will help you know which funds are better than the others. It is easy to measure the returns across mutual fund schemes. While investors cannot just invest knowing the returns provided by the fund, it can help compare two funds on a broader level. This can be the very first step you are taking to find the best direct mutual fund.

Do Not Forget to Check for Absolute Returns

Let us first understand what absolute returns are. Simply put, absolute returns are used to measure the returns gained by a fund over a definite period. You can start by noting down the NAV of the fund on a day and re-look at it after a month or two. You can even track this over a couple of months or even a year. The percentage return will provide you with the absolute return of that fund. But, when comparing funds using this parameter, it is also important to compare the right mutual funds. Well, as the saying goes, "you cannot compare apples with oranges". So, you can have a look at the returns obtained by diversified equity funds and can compare the same with various diversified equity funds only.

Create a Benchmark

The fund managing company sets a benchmark index for the fund which is a mandate to follow as per the Securities and Exchange Board of India. The benchmark index created is the standard returns that the fund targets to achieve. When the fund crosses the set benchmark, it has indeed performed well. So, when you are planning to invest in a diversified equity fund, it needs to benchmark against the market, which is the Sensex and hence you need to compare the returns against the same.

Time Period

When you are comparing mutual funds, the time period for which you are tracking it matters a most. For example, if you are comparing equity mutual funds, you need to consider a time frame of three or five years. When comparing short-term investments, you can compare them based on the returns obtained on their short maturities.

Know the Market

The performance of the markets should never be ignored when you are investing in equity mutual funds. You need to choose a fund that has time and again has withstood various kinds of market conditions. Compare to see how the fund has performed in the bearish or bullish market.

Let’s conclude!

-Always check for the fund's returns and this needs to be your very first step.-Always compare similar mutual funds.-When comparing funds, make sure that the time period remains the same.-Remember to compare the fund with its own benchmark index.

Just keep the above-mentioned tips in mind when investing in the online direct mutual fund. Just compare and be assured to get the best deals!

Vivaan Ahuja is a leading mutual fund and financial advisor, who provides guidance about buying mutual funds. He has been guiding individual Investors, Hnis and Corporate houses to increase their profitability by suggesting best funds.