How to compare Mutual Funds?

Choosing a right Mutual Fund can be a tricky affair. With an array of products being offered in the market by different fund houses, it may be confusing for you while choosing or avoiding a fund. MoneyWorks4me’s unique method of comparing Mutual Funds on the most appropriate parameters will help you invest in Mutual Funds that match your needs and Risk Profile. Moreover, in-depth fundamental research will give you the conviction to hold the selected Mutual Funds over a longer period.

Step 1: Ensure you are doing an Apple-to-Apple comparison

While comparing two Funds, it’s important that you do an apple-to-apple comparison i.e. the same type of Funds or having the same Benchmark Index. Therefore, check this first. Here’s a comparison of two well-known Funds – HDFC Large Cap Fund & Tata Large Cap Fund. Both are Large-cap, but follow different Benchmark Indices, which is acceptable. So, both Funds are comparable.

Then, compare on Assets under management (AUM) which tells us, if they are of similar size or vastly different, next Expense ratio, and Entry/exit loads as these charges eat into your returns and the Turnover ratio which tells us % of holdings replaced over one year.

Asset under Management (AUM) is slightly higher for HDFC Large Cap. The Expense Ratio and Exit Load are almost the same. So, size and expense-wise these two funds are similar. But, the Turnover ratio of Tata Large Cap Fund is considerably higher compared to HDFC Large Cap Fund. It shows that the Fund Manager changed 25% of his holding by new ones over one year.

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