How to Find Best Performing mutual Funds

Mutual Funds in India – A Brief Educational Note

Mutual funds are a popular and effective way for individuals to invest their money. In India, mutual funds are professionally managed investment schemes that pool money from multiple investors and invest in a diversified portfolio of stocks, bonds, or other securities. This structure allows investors to access a broader market with lower risk due to diversification. Why Invest in Mutual Funds? Mutual funds offer key benefits: · Professional Management: Fund managers make informed decisions based on market research. · Diversification: Spreading investments across multiple assets reduces risk. · Affordability: Even small investors can participate. · Liquidity: Most mutual funds allow easy entry and exit. · Regulation: In India, SEBI (Securities and Exchange Board of India) ensures transparency and investor protection. Evaluating Mutual Fund Performance Evaluating mutual funds can be complex, as no single method provides a full picture. However, several key metrics are commonly used:

1. Annual Returns This is the percentage gain or loss of a fund over a calendar year. To calculate it: · Find the NAV (Net Asset Value) at the start and end of the year. · Subtract last year’s NAV from the current NAV. · Divide the result by the previous year's NAV. Annual returns are easy to understand and help track consistency year-over-year.

2. Trailing Returns Trailing returns measure a fund’s performance from a past date up to the present. They can cover periods like 1 year, 3 years, 5 years, etc., and show how the fund has grown during that time. These returns help investors understand long-term performance but don’t reflect volatility within the period. They also don’t account for entry and exit points or market timing. 

3. Rolling Returns Rolling returns offer a more comprehensive view by calculating average annualized returns at regular intervals over a time frame. For instance, a 3-year rolling return may be calculated daily, monthly, or quarterly for a 10-year period. Rolling returns eliminate bias from any single time point and reveal how consistently a fund performs. They're especially useful for Systematic Investment Plan (SIP) investors who invest regularly. Trailing vs. Rolling Returns