How to Analyse a Mutual Fund: Step-by-Step Guide for Smart Investors (Beginner Friendly)
- Avijit Dutta
- Jul 4
- 3 min read
Article No :: 28
How to analyse mutual funds: Here’s a clear, step-by-step, beginner-friendly guide to master mutual fund analysis. 🌱📊
📝 Introduction (Analysis of Mutual Fund)
Investing in mutual funds is one of the most effective ways to grow wealth over time, but picking the right fund requires more than just looking at past returns. With hundreds of options available, it's important to understand how to properly analyse a mutual fund before investing your hard-earned money. In this guide, we’ll walk you through a simple, step-by-step approach to mutual fund analysis—covering key metrics, tools, and insights that will help you make smarter, more confident investment decisions.
🧭 Step 1: Know Your Goal & Risk Profile
Before checking the fund:
🎯 Goal Type: Short-term (<3 yrs), Medium-term (3–5 yrs), Long-term (>5 yrs)?
⚖️ Risk Capacity:
Low → Liquid, Debt Funds
Medium → Hybrid, Balanced Advantage Funds
High → Equity, Mid/Small Cap Funds
📂 Step 2: Understand Fund Category
Each category has different risk/return expectations.
Category | Risk Level | Return Potential | Time Horizon |
Large Cap | Low-Medium | Moderate | 5+ years |
Mid/Small Cap | High | High | 7+ years |
Hybrid | Medium | Moderate | 3–5 years |
Debt/Liquid | Low | Low | <3 years |
ELSS (Tax Saving) | High | High + Tax Benefit | 3-year lock-in |
📊 Step 3: Key Parameters to Analyse
Parameter | What to Look For | Ideal Value or Note |
Returns (1Y/3Y/5Y) | Past returns over different periods | Check vs Benchmark |
Rolling Return | Consistency over time | Higher and stable = Better |
Expense Ratio | Fund management fee | <1.5% for equity, <0.5% for debt |
Sharpe Ratio | Return vs Risk taken | >1 is good |
Alpha | Extra return over benchmark | Positive is good |
Standard Deviation | Measures volatility | Lower = Stable |
Beta | Risk vs market | <1 = Less volatile than market |
AUM | Size of the fund | Not too small or too large |
Fund Manager | Experience + Past Performance | Long track record preferred |
Portfolio Holdings | Where money is invested (stocks/sectors) | Diversified across quality stocks/sectors |
🧠 Step 4: Use Rolling Returns for Consistency
Go to sites like Value Research, Morningstar, Moneycontrol, or Groww
Check 3-year and 5-year rolling returns
A good fund should have:
✅ High average returns
✅ Low dips (even in bad markets)
✅ Less variation (more stability)
🧪 Step 5: Compare with Peers and Benchmark
Benchmark: Nifty 50, BSE 200, etc.
Peer Funds: Other top funds in the same category
✅ Fund should consistently beat the benchmark & perform better than peers over time.
⛔️ Step 6: Watch Out for Red Flags
Red Flag | Why it matters |
Frequent fund manager changes | May lead to inconsistent performance |
Sudden drop in AUM | Investors exiting = bad sign |
Very high expense ratio | Eats into your returns |
Over-concentration in a sector | Risky if sector underperforms |
🏁 Final Advice on Mutual Fund: Step-by-Step Guide for Smart Investors.
✅ Use Rolling + Trailing returns to balance consistency and current performance
✅ Always compare funds in the same category
✅ Don't chase past performance only – focus on quality, risk, and consistency
✅ For long-term goals, stay invested, don’t panic due to short-term market ups and downs
✅ Conclusion
This Mutual Fund: Step-by-Step Guide for Smart Investors is a Mutual fund analysis that isn’t about chasing the highest return—it's about finding funds that align with your goals, match your risk appetite, and deliver consistent performance over time. By focusing on critical parameters like rolling returns, Sharpe ratio, expense ratio, and portfolio quality, you’ll be better equipped to choose funds that can weather market ups and downs. Remember, successful investing is a long-term journey—so stay informed, stay consistent, and let your money grow patiently.
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