A mutual fund is a professionally-managed investment scheme, made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.<\/p>\n\n\n\n
DIFFERENT TYPES OF MUTUAL FUND SCHEMES<\/strong><\/h4>\n\n\n\n![\"\"](\"https:\/\/consultcaonline.com\/wp-content\/uploads\/2022\/06\/image-1024x518.png\")
<\/figure>\n\n\n\nEQUITY SCHEMES<\/strong><\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Multi-Cap Fund<\/td> Invest across large-cap, mid-cap, small-cap stocks
Min. equity component \u2013 65%<\/td><\/tr> 2<\/strong><\/td>Large Cap Fund<\/td> Predominantly invest in large-cap stocks
Min. equity component \u2013 80%<\/td><\/tr> 3<\/strong><\/td>Large and Mid-Cap Fund<\/td> Invest in both large-cap and mid-cap stocks
Min. equity component (large-cap stocks) \u2013 35%
Min. equity component (mid-cap stocks) \u2013 35%<\/td><\/tr> 4<\/strong><\/td>Mid Cap Fund<\/td> Predominantly invest in mid-cap stocks
Min. equity component (mid-cap stocks) \u2013 65%<\/td><\/tr> 5<\/strong><\/td>Small Cap Fund<\/td> Predominantly invest in small-cap stocks
Min. equity component (small-cap stocks) \u2013 65%<\/td><\/tr> 6<\/strong><\/td>Dividend Yield Fund<\/td> Predominantly invest in dividend-yielding stocks
Min. equity component \u2013 65%<\/td><\/tr> 7<\/strong><\/td>Value Fund<\/td> The scheme should follow a value investment strategy
Min. equity component \u2013 65%<\/td><\/tr> 8<\/strong><\/td>Contra Fund<\/td> The scheme should follow a contrarian investment strategy.
Min. equity component \u2013 65%<\/td><\/tr> 9<\/strong><\/td>Focused Fund<\/td> Maximum 30 stocks
Min. equity component \u2013 65%AMC to mention where the scheme intends to focus, viz., (multi-cap, large-cap, mid-cap, small-cap)<\/td><\/tr> 10<\/strong><\/td>Sectoral\/Thematic Fund<\/td> AMC to clearly mention the sector\/theme that the scheme shall focus on
Min. equity component (for stocks belonging to that sector\/theme) \u2013 80%<\/td><\/tr> 11<\/strong><\/td>Equity Linked Savings Schemes (ELSS)<\/td> The statutory lock-in period of 3 years
Min. equity component \u2013 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)<\/td><\/tr><\/tbody><\/table>Note:<\/strong> Mutual Funds will be permitted to offer either Value fund or Contra fund<\/figcaption><\/figure>\n\n\n\nDEBT SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Overnight Fund<\/td> Invest in overnight securities \u2013 Maturity of 1 day<\/td><\/tr> 2<\/strong><\/td>Liquid Fund<\/td> Invest in debt and money market instruments \u2013 Maturity of up to 91 days<\/td><\/tr> 3<\/strong><\/td>Ultra-short Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 3 \u2013 6 months<\/td><\/tr> 4<\/strong><\/td>Low Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 6 \u2013 12 months<\/td><\/tr> 5<\/strong><\/td>Money Market Fund<\/td> Invest in Money Market instruments \u2013 Maturity up to 1 year<\/td><\/tr> 6<\/strong><\/td>Short Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 1-3 years<\/td><\/tr> 7<\/strong><\/td>Medium Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 3 \u2013 4 years<\/td><\/tr> 8<\/strong><\/td>Medium to Long Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 4-7 years<\/td><\/tr> 9<\/strong><\/td>Long Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be more than 7 years<\/td><\/tr> 10<\/strong><\/td>Dynamic Bond<\/td> Investment across duration<\/td><\/tr> 11<\/strong><\/td>Corporate Bond Fund<\/td> Minimum 80% investment in corporate bonds (only in highest rated instruments<\/td><\/tr> 12<\/strong><\/td>Credit Risk Fund<\/td> Minimum 65% investment in corporate bonds (below highest rated instruments)<\/td><\/tr> 13<\/strong><\/td>Banking and PSU Fund<\/td> Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions<\/td><\/tr> 14<\/strong><\/td>Gilt Fund<\/td> Minimum 80% investment in Government Securities (across maturity)<\/td><\/tr> 15<\/strong><\/td>Gilt Fund with 10-year constant duration<\/td> Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nHYBRID SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Conservative Hybrid Fund<\/td> Minimum equity component \u2013 Between 10% and 25%
Minimum debt component \u2013 Between 75% and 90%<\/td><\/tr> 2<\/strong><\/td>Balanced Hybrid Fund<\/td> Minimum equity component \u2013 Between 40% and 60%
Minimum debt component \u2013 Between 40% and 60%
The AMC cannot do any arbitrage in this scheme<\/td><\/tr> 3<\/strong><\/td>Aggressive Hybrid Fund<\/td> Minimum equity component \u2013 Between 65% and 80%
Minimum debt component \u2013 Between 20% and 35%<\/td><\/tr> 4<\/strong><\/td>Dynamic Asset Allocation (or Balanced Advantage)<\/td> Invest in equity or debt \u2013 AMC to manage it dynamically<\/td><\/tr> 5<\/strong><\/td>Multi-Asset Allocation<\/td> Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
Note: AMC cannot offer foreign securities as a foreign asset class<\/td><\/tr> 6<\/strong><\/td>Arbitrage Fund<\/td> The scheme should follow an arbitrage strategy.
Minimum equity component \u2013 65%<\/td><\/tr> 7<\/strong><\/td>Equity Savings<\/td> Minimum equity component \u2013 65%
Minimum debt component \u2013 10%
AMC to state minimum hedged & unhedged in the Scheme Information Document (SID)
AMC to state Asset Allocation under defensive considerations in the Offer Document<\/td><\/tr><\/tbody><\/table>Note:<\/strong> Mutual Funds can offer either an Aggressive Hybrid fund or Balanced fund.<\/figcaption><\/figure>\n\n\n\nSOLUTION ORIENTED SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Retirement Fund<\/td> Lock-in: At least 5 years or till retirement age, whichever is earlier<\/td><\/tr> 2<\/strong><\/td>Children\u2019s Fund<\/td> Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nOTHER SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Index Funds\/ Exchange Traded Funds<\/td> Minimum 95% investment in securities of a particular index (which is being replicated\/ tracked)
AMC to mention the name of the index<\/td><\/tr> 2<\/strong><\/td>Fund of Funds (Overseas\/ Domestic)<\/td> Minimum 95% investment in the underlying fund
AMC to mention the name of the underlying fund<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nKEY MUTUAL FUND RATIO<\/strong><\/h4>\n\n\n\n1. Standard Deviation:<\/strong><\/h5>\n\n\n\nStandard Deviation value gives an idea about how volatile fund returns has been in the past 3 years. Lower value indicates more predictable performance.<\/p>\n\n\n\n
So, if you are comparing 2 funds (let\u2019s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A standard deviation value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.<\/p>\n\n\n\n
2. Beta<\/strong><\/h5>\n\n\n\nBeta value gives idea about how volatile fund performance has been compared to similar funds in the market. Lower beta implies the fund gives more predictable performance compared to similar funds in the market.<\/p>\n\n\n\n
So, if you are comparing 2 funds (let\u2019s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A beta value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.<\/p>\n\n\n\n
3. Sharpe Ratio<\/strong><\/h5>\n\n\n\nSharpe ratio indicates how much risk was taken to generate the returns. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the standard deviation of returns.<\/p>\n\n\n\n
For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, you can choose fund A, as it has given higher risk-adjusted return.<\/p>\n\n\n\n
4. Treynor’s Ratio<\/strong><\/h5>\n\n\n\nTreynor’s ratio indicates how much excess return was generated for each unit of risk taken. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the beta of returns.<\/p>\n\n\n\n
For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Treynor’s ratio of 1.40 and fund B has a Treynor’s ratio of 1.25, then you can choose fund A, as it has given higher risk-adjusted return.<\/p>\n\n\n\n
5. Jension’s Alpha<\/strong><\/strong><\/h5>\n\n\n\nAlpha indicates how fund generated additional returns compared to a benchmark.<\/p>\n\n\n\n
Let’s say if a fund A benchmarks its returns with Nifty50 returns then alpha equal to 1.0 indicates the fund has beaten the nifty returns by 1%, so the higher the alpha, the better.<\/p>\n\n\n\n
6. Sortino Ratio<\/strong><\/strong><\/h5>\n\n\n\nThe Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns\u2014downside deviation\u2014instead of the total standard deviation of portfolio returns. The Sortino ratio takes an asset or portfolio’s return and subtracts the risk-free rate, and then divides that amount by the asset’s downside deviation.<\/p>\n\n\n\n
Just like the Sharpe ratio, a higher Sortino ratio result is better. When looking at two similar investments, a rational investor would prefer the one with the higher Sortino ratio because it means that the investment is earning more return per unit of the bad risk that it takes on.<\/p>\n\n\n\n
For example, assume Mutual Fund X has an annualized return of 12% and a downside deviation of 10%. Mutual Fund Z has an annualized return of 10% and a downside deviation of 7%. The risk-free rate is 2.5%. The Sortino ratios for both funds would be calculated as:<\/p>\n\n\n\n
Mutual Fund X Sortino = (12%\u22122.5%)\/10% = 0.95<\/p>\n\n\n\n
Mutual Fund Z Sortino = (10%\u22122.5%)\/7% = 1.07<\/p>\n\n\n\n
Even though Mutual Fund X is returning 2% more on an annualized basis, it is not earning that return as efficiently as Mutual Fund Z, given their downside deviations. Based on this metric, Mutual Fund Z is the better investment choice.<\/p>\n","protected":false},"excerpt":{"rendered":"
SOURCE: SEBI WHAT IS MUTUAL FUND? A mutual fund is a professionally-managed investment scheme, made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce […]<\/p>\n","protected":false},"author":3,"featured_media":604,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[43,42,41,38,39,40],"class_list":["post-600","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investments","tag-debt-market","tag-equity-market","tag-investments","tag-mutual-fund","tag-mutual-fund-ratios","tag-mutual-fund-schemes"],"_links":{"self":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/comments?post=600"}],"version-history":[{"count":5,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600\/revisions"}],"predecessor-version":[{"id":608,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600\/revisions\/608"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/media\/604"}],"wp:attachment":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/media?parent=600"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/categories?post=600"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/tags?post=600"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
<\/figure>\n\n\n\nEQUITY SCHEMES<\/strong><\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Multi-Cap Fund<\/td> Invest across large-cap, mid-cap, small-cap stocks
Min. equity component \u2013 65%<\/td><\/tr> 2<\/strong><\/td>Large Cap Fund<\/td> Predominantly invest in large-cap stocks
Min. equity component \u2013 80%<\/td><\/tr> 3<\/strong><\/td>Large and Mid-Cap Fund<\/td> Invest in both large-cap and mid-cap stocks
Min. equity component (large-cap stocks) \u2013 35%
Min. equity component (mid-cap stocks) \u2013 35%<\/td><\/tr> 4<\/strong><\/td>Mid Cap Fund<\/td> Predominantly invest in mid-cap stocks
Min. equity component (mid-cap stocks) \u2013 65%<\/td><\/tr> 5<\/strong><\/td>Small Cap Fund<\/td> Predominantly invest in small-cap stocks
Min. equity component (small-cap stocks) \u2013 65%<\/td><\/tr> 6<\/strong><\/td>Dividend Yield Fund<\/td> Predominantly invest in dividend-yielding stocks
Min. equity component \u2013 65%<\/td><\/tr> 7<\/strong><\/td>Value Fund<\/td> The scheme should follow a value investment strategy
Min. equity component \u2013 65%<\/td><\/tr> 8<\/strong><\/td>Contra Fund<\/td> The scheme should follow a contrarian investment strategy.
Min. equity component \u2013 65%<\/td><\/tr> 9<\/strong><\/td>Focused Fund<\/td> Maximum 30 stocks
Min. equity component \u2013 65%AMC to mention where the scheme intends to focus, viz., (multi-cap, large-cap, mid-cap, small-cap)<\/td><\/tr> 10<\/strong><\/td>Sectoral\/Thematic Fund<\/td> AMC to clearly mention the sector\/theme that the scheme shall focus on
Min. equity component (for stocks belonging to that sector\/theme) \u2013 80%<\/td><\/tr> 11<\/strong><\/td>Equity Linked Savings Schemes (ELSS)<\/td> The statutory lock-in period of 3 years
Min. equity component \u2013 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)<\/td><\/tr><\/tbody><\/table>Note:<\/strong> Mutual Funds will be permitted to offer either Value fund or Contra fund<\/figcaption><\/figure>\n\n\n\nDEBT SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Overnight Fund<\/td> Invest in overnight securities \u2013 Maturity of 1 day<\/td><\/tr> 2<\/strong><\/td>Liquid Fund<\/td> Invest in debt and money market instruments \u2013 Maturity of up to 91 days<\/td><\/tr> 3<\/strong><\/td>Ultra-short Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 3 \u2013 6 months<\/td><\/tr> 4<\/strong><\/td>Low Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 6 \u2013 12 months<\/td><\/tr> 5<\/strong><\/td>Money Market Fund<\/td> Invest in Money Market instruments \u2013 Maturity up to 1 year<\/td><\/tr> 6<\/strong><\/td>Short Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 1-3 years<\/td><\/tr> 7<\/strong><\/td>Medium Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 3 \u2013 4 years<\/td><\/tr> 8<\/strong><\/td>Medium to Long Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be between 4-7 years<\/td><\/tr> 9<\/strong><\/td>Long Duration Fund<\/td> Invest in Debt & Money Market instruments \u2013 Macaulay duration of the portfolio to be more than 7 years<\/td><\/tr> 10<\/strong><\/td>Dynamic Bond<\/td> Investment across duration<\/td><\/tr> 11<\/strong><\/td>Corporate Bond Fund<\/td> Minimum 80% investment in corporate bonds (only in highest rated instruments<\/td><\/tr> 12<\/strong><\/td>Credit Risk Fund<\/td> Minimum 65% investment in corporate bonds (below highest rated instruments)<\/td><\/tr> 13<\/strong><\/td>Banking and PSU Fund<\/td> Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions<\/td><\/tr> 14<\/strong><\/td>Gilt Fund<\/td> Minimum 80% investment in Government Securities (across maturity)<\/td><\/tr> 15<\/strong><\/td>Gilt Fund with 10-year constant duration<\/td> Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nHYBRID SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Conservative Hybrid Fund<\/td> Minimum equity component \u2013 Between 10% and 25%
Minimum debt component \u2013 Between 75% and 90%<\/td><\/tr> 2<\/strong><\/td>Balanced Hybrid Fund<\/td> Minimum equity component \u2013 Between 40% and 60%
Minimum debt component \u2013 Between 40% and 60%
The AMC cannot do any arbitrage in this scheme<\/td><\/tr> 3<\/strong><\/td>Aggressive Hybrid Fund<\/td> Minimum equity component \u2013 Between 65% and 80%
Minimum debt component \u2013 Between 20% and 35%<\/td><\/tr> 4<\/strong><\/td>Dynamic Asset Allocation (or Balanced Advantage)<\/td> Invest in equity or debt \u2013 AMC to manage it dynamically<\/td><\/tr> 5<\/strong><\/td>Multi-Asset Allocation<\/td> Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
Note: AMC cannot offer foreign securities as a foreign asset class<\/td><\/tr> 6<\/strong><\/td>Arbitrage Fund<\/td> The scheme should follow an arbitrage strategy.
Minimum equity component \u2013 65%<\/td><\/tr> 7<\/strong><\/td>Equity Savings<\/td> Minimum equity component \u2013 65%
Minimum debt component \u2013 10%
AMC to state minimum hedged & unhedged in the Scheme Information Document (SID)
AMC to state Asset Allocation under defensive considerations in the Offer Document<\/td><\/tr><\/tbody><\/table>Note:<\/strong> Mutual Funds can offer either an Aggressive Hybrid fund or Balanced fund.<\/figcaption><\/figure>\n\n\n\nSOLUTION ORIENTED SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Retirement Fund<\/td> Lock-in: At least 5 years or till retirement age, whichever is earlier<\/td><\/tr> 2<\/strong><\/td>Children\u2019s Fund<\/td> Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nOTHER SCHEMES<\/strong><\/h5>\n\n\n\nS.NO.<\/strong><\/td>CATEGORY<\/strong><\/td>SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr>1<\/strong><\/td>Index Funds\/ Exchange Traded Funds<\/td> Minimum 95% investment in securities of a particular index (which is being replicated\/ tracked)
AMC to mention the name of the index<\/td><\/tr> 2<\/strong><\/td>Fund of Funds (Overseas\/ Domestic)<\/td> Minimum 95% investment in the underlying fund
AMC to mention the name of the underlying fund<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nKEY MUTUAL FUND RATIO<\/strong><\/h4>\n\n\n\n1. Standard Deviation:<\/strong><\/h5>\n\n\n\nStandard Deviation value gives an idea about how volatile fund returns has been in the past 3 years. Lower value indicates more predictable performance.<\/p>\n\n\n\n
So, if you are comparing 2 funds (let\u2019s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A standard deviation value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.<\/p>\n\n\n\n
2. Beta<\/strong><\/h5>\n\n\n\nBeta value gives idea about how volatile fund performance has been compared to similar funds in the market. Lower beta implies the fund gives more predictable performance compared to similar funds in the market.<\/p>\n\n\n\n
So, if you are comparing 2 funds (let\u2019s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A beta value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.<\/p>\n\n\n\n
3. Sharpe Ratio<\/strong><\/h5>\n\n\n\nSharpe ratio indicates how much risk was taken to generate the returns. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the standard deviation of returns.<\/p>\n\n\n\n
For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, you can choose fund A, as it has given higher risk-adjusted return.<\/p>\n\n\n\n
4. Treynor’s Ratio<\/strong><\/h5>\n\n\n\nTreynor’s ratio indicates how much excess return was generated for each unit of risk taken. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the beta of returns.<\/p>\n\n\n\n
For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Treynor’s ratio of 1.40 and fund B has a Treynor’s ratio of 1.25, then you can choose fund A, as it has given higher risk-adjusted return.<\/p>\n\n\n\n
5. Jension’s Alpha<\/strong><\/strong><\/h5>\n\n\n\nAlpha indicates how fund generated additional returns compared to a benchmark.<\/p>\n\n\n\n
Let’s say if a fund A benchmarks its returns with Nifty50 returns then alpha equal to 1.0 indicates the fund has beaten the nifty returns by 1%, so the higher the alpha, the better.<\/p>\n\n\n\n
6. Sortino Ratio<\/strong><\/strong><\/h5>\n\n\n\nThe Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns\u2014downside deviation\u2014instead of the total standard deviation of portfolio returns. The Sortino ratio takes an asset or portfolio’s return and subtracts the risk-free rate, and then divides that amount by the asset’s downside deviation.<\/p>\n\n\n\n
Just like the Sharpe ratio, a higher Sortino ratio result is better. When looking at two similar investments, a rational investor would prefer the one with the higher Sortino ratio because it means that the investment is earning more return per unit of the bad risk that it takes on.<\/p>\n\n\n\n
For example, assume Mutual Fund X has an annualized return of 12% and a downside deviation of 10%. Mutual Fund Z has an annualized return of 10% and a downside deviation of 7%. The risk-free rate is 2.5%. The Sortino ratios for both funds would be calculated as:<\/p>\n\n\n\n
Mutual Fund X Sortino = (12%\u22122.5%)\/10% = 0.95<\/p>\n\n\n\n
Mutual Fund Z Sortino = (10%\u22122.5%)\/7% = 1.07<\/p>\n\n\n\n
Even though Mutual Fund X is returning 2% more on an annualized basis, it is not earning that return as efficiently as Mutual Fund Z, given their downside deviations. Based on this metric, Mutual Fund Z is the better investment choice.<\/p>\n","protected":false},"excerpt":{"rendered":"
SOURCE: SEBI WHAT IS MUTUAL FUND? A mutual fund is a professionally-managed investment scheme, made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce […]<\/p>\n","protected":false},"author":3,"featured_media":604,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[43,42,41,38,39,40],"class_list":["post-600","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investments","tag-debt-market","tag-equity-market","tag-investments","tag-mutual-fund","tag-mutual-fund-ratios","tag-mutual-fund-schemes"],"_links":{"self":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/comments?post=600"}],"version-history":[{"count":5,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600\/revisions"}],"predecessor-version":[{"id":608,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/posts\/600\/revisions\/608"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/media\/604"}],"wp:attachment":[{"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/media?parent=600"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/categories?post=600"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/consultcaonline.com\/index.php\/wp-json\/wp\/v2\/tags?post=600"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
S.NO.<\/strong><\/td>| CATEGORY<\/strong><\/td> | SCHEME CHARACTERISTICS\/MINIMUM CONDITIONS<\/strong><\/td><\/tr> | 1<\/strong><\/td> | Multi-Cap Fund<\/td> | Invest across large-cap, mid-cap, small-cap stocks | Min. equity component \u2013 65%<\/td><\/tr> 2<\/strong><\/td> | Large Cap Fund<\/td> | Predominantly invest in large-cap stocks | Min. equity component \u2013 80%<\/td><\/tr> 3<\/strong><\/td> | Large and Mid-Cap Fund<\/td> | Invest in both large-cap and mid-cap stocks | Min. equity component (large-cap stocks) \u2013 35% Min. equity component (mid-cap stocks) \u2013 35%<\/td><\/tr> 4<\/strong><\/td> | Mid Cap Fund<\/td> | Predominantly invest in mid-cap stocks | Min. equity component (mid-cap stocks) \u2013 65%<\/td><\/tr> 5<\/strong><\/td> | Small Cap Fund<\/td> | Predominantly invest in small-cap stocks | Min. equity component (small-cap stocks) \u2013 65%<\/td><\/tr> 6<\/strong><\/td> | Dividend Yield Fund<\/td> | Predominantly invest in dividend-yielding stocks | Min. equity component \u2013 65%<\/td><\/tr> 7<\/strong><\/td> | Value Fund<\/td> | The scheme should follow a value investment strategy | Min. equity component \u2013 65%<\/td><\/tr> 8<\/strong><\/td> | Contra Fund<\/td> | The scheme should follow a contrarian investment strategy. | Min. equity component \u2013 65%<\/td><\/tr> 9<\/strong><\/td> | Focused Fund<\/td> | Maximum 30 stocks | Min. equity component \u2013 65%AMC to mention where the scheme intends to focus, viz., (multi-cap, large-cap, mid-cap, small-cap)<\/td><\/tr> 10<\/strong><\/td> | Sectoral\/Thematic Fund<\/td> | AMC to clearly mention the sector\/theme that the scheme shall focus on | Min. equity component (for stocks belonging to that sector\/theme) \u2013 80%<\/td><\/tr> 11<\/strong><\/td> | Equity Linked Savings Schemes (ELSS)<\/td> | The statutory lock-in period of 3 years | Min. equity component \u2013 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)<\/td><\/tr><\/tbody><\/table> DEBT SCHEMES<\/strong><\/h5>\n\n\n\n
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