5 Key Things to Look For While Selecting an Equity Mutual Fund

01 Dec 2022

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Investing in equity mutual funds can be rewarding over the long term. But the domestic mutual fund universe has over 500 schemes and selecting the right one can be tricky. This primer will guide you on selecting equity funds that are in tune with your goals and risk appetite.

5 steps to identify the right equity fund

1. Fund category / style –

Equity funds offer style-wise variety (active, passive, smart beta) and market cap options (large cap, mid cap, small cap, flexi cap). Different are suitable for investors with varying risk profiles and investment horizons so choose one that works.

2. Fund’s risk profile –

Beta, down capture ratio are few parameters an investor can look at for assessing the risk of an equity fund. Investors can refer a fund with low beta and low down capture ratio which indicates relative stability of a fund.

3. Long-term performance –

It is imperative for investors to look at the long-term performance and consistency of the fund rather than swaying away from short term market movements.

4. Consistency in Performance -

While trailing returns indicates how a fund has performed in the past, Rolling return is an important parameter that helps evaluate the consistency of returns of a fund.

5. Peer and benchmark comparison –

Equity funds often showcase their performance in isolation. It’s a good idea to compare the equity fund’s performance vis-à-vis not just the benchmark but also its peers.

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