Factors to consider while comparing Mutual Funds

1. Factors to consider while comparing Mutual Funds

2. A mutual fund investment is great for every portfolio. This investment tool helps an individual build their wealth and reap maximum returns. However, not all mutual funds are the same. Here, we bring you important factors to consider when comparing mutual funds.

3. Time period of Investment Every mutual fund investment may have a different time period. While comparing mutual funds be sure to check the time period and lock-in period if any. Always compare funds with the same time period for maximum effectiveness.

4. Benchmark returns This return amount is a comparison of what the mutual fund investment should have earned and what it has earned in reality. When comparing mutual funds, be sure to check the benchmark returns to understand how effectively it is performing.

5. Market dynamics An important factor when comparing mutual funds is the market dynamic. For instance, an equity fund in a bullish market is sure to outperform an equity mutual fund investment in a bearish market, irrespective of the type of stocks or fund manager.

6. Type of fund Always compare two same type of funds for clarity i.e. equity fund with an equity fund. Do not compare a diversified fund with an industry fund as that will not give you a correct interpretation.

7. Risk return pay-off Each type of fund has a different risk-return profile. When comparing the returns of different mutual funds, be sure to ensure that their risk profile is similar and vice versa. Comparing the returns of an equity fund with a balanced fund is not suitable as their risk ratio is vastly different. Thus, when comparing mutual fund investments, there are several important factors to consider to make the right decision. If you are a beginner or someone new to the financial market, it may be advisable to opt for expert advice for a better decision.