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Picking and choosing a mutual fund appear to have turned out to be a very many-sided matter. There is no shortage of funds in the market the most crucial factor in determining which one is better than the rest is to look at returns. Returns are the easiest to measure and compare across funds.
1. Absolute returns measure how much a fund has gained over a certain period. The percentage disparity will tell you the return over the period.
2. Fund’s benchmark -This will provide you a standard by which to make the assessment. It in essence indicates what the fund has earned as against what it should have earned. A fund’s benchmark is an index that is selected by a fund corporation to give out as a standard for its returns.
3. Time period – The time period over which returns should be compared and assessed has to be the same over which that fund type is meant to be invested in. If you are comparing equity funds then you must use three to five year returns.
4. Market conditions It is also important to see whether a fund’s return history is long enough for it to have seen all kinds of market conditions.
5. Compare funds that are comparable in nature. Comparison is extremely important . you must understand the importance of comparing mutual funds.
6. When returns are compared, make sure that the time period is equal. also make sure that the product is same in nature as far as risk factors are concerned.