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compare mutual funds

How to Compare Mutual Funds

A comparative analysis is of great value in selecting the right mutual fund scheme to meet financial goals in the defined time. Comparing mutual funds does not mean only looking at the past returns. Of course, returns are one of the measures of comparison but there are several other things that you should take into consideration.

You should consider the following parameters for comparing mutual funds;

#1. Investment Objective

There are thousands of equity schemes with different investment objectives. These schemes are basically categorized as large-cap, mid-caps, small-caps, and multi-caps funds. There are value funds, contra funds, and sectoral funds as well. All of them are equity-oriented mutual funds but have different investment objectives.

Likewise, there are many debt mutual fund schemes. When you compare any two or more mutual fund schemes you should know their investment objectives. Then pick-up the fund that is closer to your financial goals.

#2. Returns Benchmarked With

Every mutual fund is tied to a particular index or benchmark. The benchmark helps in comparing the performance of the mutual funds over a period of time.

For example, suppose equity mutual fund A is benchmarked to Nifty 100 total return index. Keeping other parameters the same, for a given period if the index gained 18% and the fund A rises 20% then the fund has out-performed the index.

Whereas, if the index falls by 10% and the fund A goes down by 12% then fund A has under-performed for the given period.

Select the mutual fund scheme that has given consistently higher returns than its benchmarked index.

#3. Risk Type

Not all equity mutual funds are equal in risk. Small-cap equity mutual funds have more risk in comparison to large-cap mutual funds. The varying degree of riskiness of a particular mutual fund is due to the underlying investments it does.

You should compare mutual funds on the basis of their risk and pick the mutual fund scheme that matches your risk-taking capacity.

#4. Years in Existence

Mutual funds having fairly long existence have seen all types of market cycles/ fluctuations. They have business experience and have grown over time in assets (AUM). Such mutual funds are from stable asset management companies (AMC).

So, you need to consider the number of years of mutual fund existence and their track record while comparing mutual funds.

#5. Exit Loads and Expense Ratio

Expense ratio and exit load are charges you pay for mutual fund investments. The loads cover the management, redemption, and mutual fund administration expenses.

A mutual fund with a lower exit load and expense ratio is preferred. However, a mutual fund with a lower expense ratio does not mean that the fund is generating higher returns for you.

You should select a mutual fund that has higher returns even if it is charging slightly higher loads.

Why Should you Compare the Mutual Funds

There are 8000+ mutual fund schemes in India. Picking up the right mutual fund matching your financial goals, investment horizon, and risk-taking capacity is a huge task.

Moreover, mutual funds from a particular category look quite similar. This can confuse you. You could possibly choose the wrong mutual fund scheme. Comparing mutual funds helps you find the differences between them.

When you compare mutual funds, you come to know about the riskiness, investment objectives, consistency of returns, years in existence, and the quality of the fund.

All these factors help you in selecting the best mutual fund scheme for your investment needs.

Comparison of the Best Equity Mutual Funds

The equity mutual funds invest a major portion of the portfolio in equity and equity-related instruments in various proportions. The proportions are based on the fund’s investment objectives.

The equity mutual funds scheme is suited for aggressive investors that have the capacity to take higher risk.

The equity mutuals are helpful in creating long-term wealth because they are a high-risk high return investment.

ParticularsInvesco India Growth Opportunities Fund (G)Kotak Standard Multicap Fund (G)Mirae Asset Large Cap Fund (G)AXIS Bluechip Fund (G)
Investment ObjectiveTo provide long-term capital appreciation/ income by investing predominantly in a diversified portfolio consisting of equity and equity-related securities large-cap companiesTo generate long-term capital appreciation from a portfolio of equity and equity-related securities generally focused on a few selected sectors.To generate long-term capital appreciation by capitalizing on potential investment opportunities by predominantly investing in equities of large-cap companiesTo provide long-term capital appreciation/ income by investing predominantly in a diversified portfolio predominantly consisting of equity and equity-related securities large-cap companies including derivatives
Managed byInvesco Asset Management Company Pvt LtdKotak Mahindra Asset Management Company LimitedMirae Asset Global Investment Management (India) Private LimitedAxis Asset Management Company Ltd
Asset Class typeEquity, DiversifiedEquityEquityEquity, Large Cap
Benchmarked toBSE 100 India Total Return IndexNifty 200 Total Return IndexNifty 100 Total Return IndexNifty 50 Total Return Index
Risk TypeModerately High RiskModerately High RiskHigh RiskModerately High Risk
Inception Date08.09.200711.09.200904.04.200801.05.2010
The first minimum investment amountRs. 1000 or
a SIP of Rs. 500
Rs. 5000 or
a SIP of Rs. 1000
Rs. 5000 or
a SIP of Rs. 1000
Rs. 5000 or
a SIP of Rs. 1000
AUMRs. 2,498.42 CroresRs. 28,348.01 CroresRs. 15,896.69 CroresRs.11,823.95 Crores
Asset AllocationEquity- 96%
Others- 4%
Equity – 90.27%
Others – 9.71%
Debt – 0.013%
Equity – 97.84%
Others – 2.16%
Equity- 82%
Others- 18%
Exit Load1% on or before 1 year1% on or before 1 year1% on or before 1 year (365 days)1% on or before 1 year

Comparison of the Best Tax Saving Mutual Funds

The tax saving mutual funds are no different than any other mutual fund with the only difference of having a tax benefit and a lock-in period. The amount invested is allowed as a deduction up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961.

The portfolio is majorly equity-oriented and the lock-in period for tax saving mutual funds is 3 years. The tax saving mutual funds are also known as Equity-Linked Mutual Funds ELSS. In case the investment is made through SIP, the lock-in period is calculated for every installment of investment.

The benefits of investing in a tax saving mutual fund or ELSS are listed below:

  1. ELSS allows an investor to save taxes as well as the benefit of the growth and returns from the underlying assets provided in the ELSS portfolio. Where other tax-saving schemes like PPF, NSC, Fixed Deposit, etc provide an average of 8% returns on investment, ELSS provides a better return being a diversified portfolio.
  2. An investor can invest as low as Rs 500 in ELSS, turning an investor’s small savings into an investment. This helps build a habit of continuous saving.
  3. The tax benefit an equity-linked mutual fund carries makes it more attractive for investors. Other mutual funds such as debt-oriented mutual funds, liquid funds, do not provide a tax benefit to its investors. The amount invested is allowed as a deduction up to Rs 1.5 lakh, the capital gain earned on maturity is exempt up to Rs 1 lakh.
ParticularsMirae Asset Tax Saver Fund (G)Motilal Oswal Long Term Equity Fund (G)
Investment ObjectiveTo provide long-term wealth creation and tax saving by investing a diversified portfolio of equity and equity equivalent instruments.To generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related instruments.
Managed byMirae Asset Investment Managers (India) Private LimitedMotilal Oswal Asset Management Company Limited
Asset Class typeEquity, Tax-savingEquity
Benchmarked toNifty 200 Total Return IndexNIFTY 500 Total Return Index (TRI)
Risk TypeModerately High RiskModerately High Risk
Inception Date28.12.201521.01.2015
The first minimum investment amountRs. 1000 or
a SIP of Rs. 1000
Rs. 1000 or
a SIP of Rs. 1000
AUMRs.3,281.58 CroresRs. 1,584.31 Crores
Asset AllocationEquity- 99%
Others- 1%
Debt – 96.97%
Others – 3.03%

Comparison of Debt Mutual Funds

Debt mutual funds invest a major portion of the pooled funds in debt and money market instruments having specified maturities.

Examples of underlying debt and money market instruments are;

  • Corporate bonds
  • Debentures
  • Government securities
  • T-bills
  • Commercial papers (CP’s)
  • Certificate of deposits (CD’s)

Debt mutual funds investment is best for risk-averse or short-term investors who prefer capital protection over fund appreciation. Debt funds do not have wide market fluctuations like equity markets.

The debt mutual funds are better suited for short to medium-term life goals like creating a corpus of emergency funds, funds for the wedding, buying a dream car or retiring debt

ParticularsTata Liquid Fund (G)Kotak Savings Fund (G)ICICI Pru Savings Fund (G)
Investment ObjectiveTo generate reasonable returns with high liquidity to the unitholders.To generate returns through investments in debt and money market instruments (MMI) with a view to reduce the interest rate risk.To generate income through investments in a range of debt and money market instruments while maintaining the optimum balance of yield, safety, and liquidity.
Managed byTata Asset Management LimitedKotak Mahindra Asset Management Company LimitedICICI Prudential Asset Management Company Limited
Asset Class typeDebtDebtDebt
Benchmarked toCrisil Liquid Fund IndexNIFTY Ultra Short Duration Debt IndexNIFTY Low Duration Debt Index
Risk TypeLow RiskModerately Low RiskModerately Low Risk
Inception Date01.09.200413.08.200427.09.2002
The first minimum investment amountRs. 5000 or
a SIP of Rs. 1000
Rs. 5000 or
a SIP of Rs. 1000
Rs. 100 or
a SIP of Rs. 1000
Yield to Maturity5.32%6.1%6.53%
AUMRs. 21,439.46 CroresRs. 11,280.56 CroresRs. 19,394.59 Crores
Asset AllocationDebt – 96.47%
Others – 3.53%
Debt – 96.78%
Others – 3.22%
Debt – 96.51%
Others – 3.49%
Exit LoadDay 1 – 0.007%, daily decreasing 0.0005% such that on day 6 the exit load is 0.0045%.
From day 7 – NIL
NILNIL

Comparison of Liquid Mutual Funds

As per the SEBI categorization of mutual fund schemes, the liquid mutual fund invests in securities that have a specific maturity of up to 91 days only. Liquid funds primarily belong to the debt category of mutual funds.

The investment objective of the liquid mutual fund is to create a highly liquid corpus of emergency funds. Thus you can use liquid funds for creating a corpus of funds for financial goals like emergency funds for paying education fees, medical emergency or income support in case of job loss.

Liquid funds offer a lower return in comparison to equity or hybrid mutual funds that carry a high risk. Thus, liquid funds are low risk and low return investment option, best for the risk-averse, short-term investors.

ParticularsAxis Liquid Fund (G)Tata Liquid Fund (G)
Investment ObjectiveTo provide a high level of liquidity with reasonable returns commensurate with low risk through a portfolio of money market and debt securities.To generate reasonable returns with high liquidity to the unitholders.
Managed byAxis Asset Management Company Ltd.Tata Asset Management Limited
Asset Class typeDebtDebt
Benchmarked toNifty Liquid Fund IndexCrisil Liquid Fund Index
Risk TypeLow RiskLow Risk
Inception Date09.10.200901.09.2004
The first minimum investment amountRs. 500 or
A SIP of Rs. 1000
Rs. 5000 or
a SIP of Rs. 1000
Yield to Maturity5.29%5.32%
AUMRs. 30,067.86 CroresRs. 21,439.46 Crores
Asset AllocationDebt – 99.42%
Others – 0.58%
Debt – 96.47%
Others – 3.53%
Exit LoadDay 1 – 0.007%, daily decreasing 0.0005% such that on day 6 the exit load is 0.0045%.
From day 7 – NIL
Day 1 – 0.007%, daily decreasing 0.0005% such that on day 6 the exit load is 0.0045%.
From day 7 – NIL

Conclusion

Comparing mutual funds helps you assess the quantitative and qualitative parameters of mutual funds. This is of great importance to ensure that your investments are in line with your investment objectives.

Comparing mutual funds help you with better fund selection. You do not blindly rely on returns only for picking up a mutual fund for your investment needs.

Published on January 6, 2020