5 Key Factors to Compare Mutual Funds Online

Jul 07, 2022

Listen to 5 Key Factors to Compare Mutual Funds Online

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In India, there are up to 44 Asset Management Companies (AMCs) that operate in the mutual fund industry and offer mutual fund schemes across various categories and sub-categories. Are you finding it difficult to choose the right mutual fund scheme among the 2500+ mutual fund schemes floating in the Indian market?

You may have come across a plethora of mutual funds offering various benefits at nominal investment. However, all the funds in a given category initially have a similar appearance which makes it difficult for investors to make informed decisions. As investing is a long-term endeavour, it is important to understand what you are getting into before choosing a mutual fund scheme.

What is your thought process behind choosing a worthy mutual fund scheme? Do you base your mutual fund investment blinded by the star ratings given to mutual fund schemes? Or Do you rely on hearsay or advice from your friends/relatives while investing in mutual funds?

Well, all mutual funds are not the same; they have different investment styles, strategies, objectives, risk-reward ratios, and investment costs that need closer examination. Given that, selecting the right mutual funds is the first step toward your wealth creation journey.

In order to arrive at the best mutual funds, you need to compare various funds available in the markets. Mutual fund comparison will help you understand the differences between them the riskiness, investment objectives, consistency of returns, years in existence, and the quality of the fund.

5 Key Factors to Compare Mutual Funds Online
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The majority of investors use fund returns as the sole metric to assess and contrast the performance of various funds. Returns are undoubtedly one of the comparison metrics; however, there are a number of other factors that you should take into account.

To compare mutual funds, you need to consider various qualitative and quantitative parameters such as:


A comparative analysis is of great value in selecting the right mutual fund scheme to meet your financial goals in the defined time.

However, not everyone holds the expertise to analyse mutual funds in-depth using these parameters and evaluate the numerous ratios required for the quantitative analysis. Choosing the best suitable mutual fund is a daunting task for many investors. However, the 'Compare Mutual Funds' tool available online across various fund houses and mutual fund distributors' web portals is the answer to your query.

'Compare Mutual Funds' tool allows you to compare two or more mutual fund schemes across varied time frames. It also provides a quick view of various qualitative and quantitative parameters details like Performance, Rating, Portfolio holding and much more.

Investors, especially the tech-savvy generation, can conveniently use the compare mutual funds tool to select the best mutual funds. You can search and select the schemes you wish to compare, and you will receive multiple metrics in a tabular format which will include returns comparison and various portfolio attributes. Investors can choose worthwhile plans for their mutual fund portfolio with the help of this effective and time-saving tool.

Here are a few basic key factors amongst the various qualitative and quantitative parameters that every investor must consider while comparing mutual funds online:

1. Past performance of the funds

Performance track record is the first thing investors look at while comparing two or more mutual funds. Studying a fund's past performance will help you set realistic expectations of its future performance. But how do you analyse a fund's past performance? Well, there are 3 different aspects to consider:

  • Compare the performance with benchmark returns

    Every mutual fund is tied to a particular index or benchmark that helps compare the mutual funds' performance over time. It indicates the returns the fund has generated as against how much it should have delivered. The sole aim of an active fund manager is to beat the fund's benchmark, i.e., to generate 'alpha returns'.

    For example, an equity mutual fund is benchmarked to the Nifty 50 total return index. If the index rises by 10% but the NAV of the fund rises by 12%, then the fund is said to have outperformed the index. Conversely, if the index falls by 10% but the fund loses by 12%, then the fund is said to have underperformed the index. Select the mutual fund scheme that has given consistently higher returns than its benchmarked index. However, this is not applicable in the case of passive funds, as they tend to mirror the index performance and not outperform the index.

  • Compare the performance with peers

    A fund's performance in isolation does not indicate anything. Hence, it becomes crucial to compare the fund with its benchmark index and its peers so as to deduce a meaningful inference. If your mutual fund scheme is unable to beat its peers consistently, then the fund is not worth investing in. But remember to keep the comparison fair. You should not compare apples to oranges, i.e., large-cap funds, with mid-cap or small-cap funds and arrive at a conclusion.

  • Compare the performance across market cycles

    While comparing mutual fund schemes, it is advisable to assess if your mutual fund can ride out numerous market cycles given the volatility of the markets, particularly equities markets. A mutual fund scheme may underperform or outperform in the short-term period as a result of changes in dynamic market conditions.

    However, you should not be swayed by short-term trends; instead, consider the fund's long-term performance and evaluate whether it consistently outperforms the market during various market cycles. However, keep in mind that a fund's past performance may not always predict its future success.

2. Portfolio Characteristics

The most important and often overlooked aspect while comparing mutual funds is the portfolio characteristics such as type of scheme, asset allocation, holdings and investment objective of the fund. The performance of a mutual fund is extensively dependent on the quality of its underlying portfolio, i.e., stocks and other securities it holds.

You may consider assessing the holdings pattern between these funds and check if the portfolio is well-diversified to survive the market volatility. Moreover, the portfolio manager will invest the funds pooled as per the investment objective. Hence it is important that investors must compare and select the fund that is aligned with their financial goals.

3. Cost of Investment

Your investment in mutual funds comes at a cost. Expense ratio and exit load are charges you pay to a fund house to manage your mutual fund investments. Investors' potential fund returns are directly impacted by the expense ratio and exit load levels.

It might not be worthwhile to purchase a mutual fund scheme with a high investment cost if two funds are equivalent in most situations but have slightly higher performance. A mutual fund with a lower exit load and expense ratio is preferred, whereas a higher expense ratio ultimately dents the profits earned by the investors. Look for a fund which has the lowest expense ratio in the given category.

Do not compare index funds with an actively managed fund. The expense ratio of the index fund is lower due to the low fund management fee.

4. The risk profile of the funds

Whenever you invest in any mutual fund, you undertake some risk. Thus, it is essential to evaluate mutual funds according to their risk profile. The underlying security holdings of a specific mutual fund determine its different levels of riskiness. The risk of each equity mutual fund varies. In comparison to large-cap mutual funds, small-cap mutual funds carry a higher level of risk. Similarly, funds that invest heavily in concentrated stocks or sectors tend to be highly risky and volatile.

Standard Deviation (SD or STDEV) is a common way to quantify risk because it shows how much risk the fund has exposed its investors to. From the standpoint of an investor, assessing a fund's risk is crucial since it will enable them to determine whether the fund's risk profile matches their own risk profile or not. For instance, if two funds have produced comparable returns, a wise investor would choose the fund with the lower SD since it carries a low risk.

Additionally, you may consider evaluating the funds on the basis of Sharpe and Sortino ratios which measures the risk-adjusted return generated by the fund. The Sharpe ratio simply denotes the unit of returns earned over and above the risk-free return for every unit of risk undertaken. The Sortino ratio is a variation of the Sharpe ratio that only factors in downside risk into consideration. In terms of both the ratios, higher the ratio, better is the fund, which means that the investment is earning better returns per unit of risk taken by the scheme.

5. Investment Horizon

Your investment horizon becomes a driving factor for fund selection and comparison. Investors with a long investment horizon of at least 5-7 years or more might consider equity funds. The fund objective in this time period is wealth accumulation at relatively high risk.

Similarly, for investing surplus funds for the short term, liquid funds give better returns than a savings bank account. Here, the fund objective is the safety of capital along with moderate returns. From this context, while comparing mutual funds, your investment horizon should compare mutual funds with time periods that match your investment horizon.

When investing in equity-oriented funds, investors must have a long-term time horizon (of at least 5-7 years). Simple math shows that the longer your investment horizon, the more the risk you can take, and the more time you will have to even out your losses.

It means that while comparing two equity funds, you may consider fund returns of the past 5 to 10 years. In the same way, for comparing two liquid funds, consider fund returns of the past six months to 1 year. Select the mutual fund scheme that has consistently performed well in the long run.


To conclude...

You must be aware of your investment objectives before you invest in a mutual fund scheme. Therefore, you should start looking at all the information that is accessible regarding a specific mutual fund that interests you. Given the variety of funds available on the market, it's crucial to examine several mutual funds before investing in one of them.

Apart from the quantitative and qualitative parameters of mutual funds, there are some personal factors that each investor should take into account. You must invest in a mutual fund scheme that is appropriate for you based on your risk tolerance, investment horizon, and financial goals.

Additionally, you must also consider the choice of a Systematic Investment Plan (SIPs) while investing in Mutual Funds to begin your investment journey systematically and benefit from the power of compounding over the long term. Considering the current market volatility, selecting the best suitable mutual fund scheme that aligns with your financial goals, investment horizon, and risk-taking capacity is challenging; ensure you compare wisely and consider the key factors to invest in worthy mutual fund schemes.

PS:  If you wish to select actively managed worthy mutual fund schemes, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst

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