Mutual fund sahi to hai but kaunsa mutual fund sahi hai. Like most retail investors you might have faced this problem of indecision at some point of time and if you have, then this video is perfect for you.
In this video, we shall detail out how ETMONEY Report Card is the most comprehensive way to evaluate mutual funds in India. The ETMONEY Fund Report Card vastly improves your fund selection process by giving you the right signals, the right indicators to help them make better investment choices.
Topics Covered:
00:00 Introduction
01:42 Performance quality
03:14 Downside Protection
04:50 ETMONEY Rank
๐ PERFORMANCE QUALITY
We arrive at performance quality by looking at two metrics:
1. Consistency of the returns generated by the fund and whether these returns were over the fund’s benchmark which is the entire point of investing in an actively managed fund. More specifically, this consistency is derived from a statistical measure called the Information Ratio
2. To assess if the fund offers a higher incremental return for every additional unit of risk it takes up. We measure the risk part of performance quality using the Sharpe ratio of the fund.
๐ DOWNSIDE PROTECTION
A fund’s downside protection can be evaluated by examining two characteristics
1. The fund’s ability to control losses during market corrections. We measure this using the Sortino ratio and as expected, the higher a fund’s sortino ratio, the better is its ability to control losses.
2. The fund’s ability to deliver returns without frequent ups and downs. We measure volatility with the fund’s standard deviation .. and in doing so, funds with a lower standard deviation receive better scores as they exhibit stable and predictable returns.
๐ ETMONEY RANK
The third part of the Fund Report Card is our ranking feature which is available on the ETMONEY app and is presently used by lakhs of investors
The ETMONEY ranking system uses a total of 9 different return and risk parameters
here
1. INFORMATION RATIO
2. STANDARD DEVIATION
3. SORTINO RATIO
4. SHARPE RATIO
5. SECTOR CONCENTRATION
6. COMPANY CONCENTRATION
7. CREDIT QUALITY
8. MODIFIED DURATION
9. YEILD-TO-MATURITY
Once we have the parameters the next task is to append a weight to each of them. Like in the case of equity funds a larger grouping of weights as high as 75% is given to those parameters that reflect the fund’s risk-adjusted returns
And the rest 25% of the weights reflect the downside protection and risk management capabilities of the fund.
In Fact, in the case of debt schemes, our ranking philosophy is more centered around the principle of the return of capital rather than the return on capital.
ETMONEY’s debt category rankings give almost equal weightage to performance quality and downside protection .. which is in addition to essential parameters like yield to maturity, modified duration, and the credit quality
After this, the schemes are ranked. The ranking process is initiated by giving a sub-rank for each parameter. This ranking is done over a distribution curve with the top 10 percentile of schemes getting 5 points the next 22.5 percentile of funds are given 4 points next 35% get 3 points and the bottom 22.5 and 10 percentile receive 2 and 1 point respectively
Once each parameter is scored these are then multiplied against the weights which then gives us the final score per scheme. We then compile the final scores of all schemes within a category and rank them in descending order.
And this non-availability is largely on account of some essential qualifiers we have applied to keep the rankings relevant and meaningful
Qualifiers for Ranking:
1. Fund's age
- Equity and Hybrid - 36+ months
- Debt Funds - 12 &18 months
2. Category with at least 5 funds
Fund categories not ranked:
- Floating rate funds
- International Funds
- Sector and Thematic Funds
Reasons for not ranking:
- Lack of Relevant Data
- Category's Non-standardised Nature
Resources:
Link of the worksheet which includes specifics of 44 international funds: https://cdnblog.etmoney.com/wp-content/uploads/2021/04/ETMONEY_International20Mutual20Funds-1.xlsx
International Mutual fund - https://www.youtube.com/watch?v=qRT917PvEns
Best Mutual Funds - https://www.youtube.com/watch?v=EEJ1Nj2de8U
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