How should investors evaluate scheme returns?

Kshitis Mahajan, managing partner and chief executive officer of Complete Circle Wealth Solutions LLP, said returns are the result of a process overseen by fund managers.

“If it’s a consistent performance, that’s great. You should really look at what’s behind the scenes. That’s the bigger and more important part. After all, when you invest in something When we invest our hard-earned money, you want it to be ‘funded to grow,”’ Mahajan said.

It’s only natural for all of us to focus on returns. That’s because he is one of what investors expect before an investment opportunity. But there are some other aspects you can consider, says Shalini Dhawan, director and co-founder of Plan Ahead Wealth Advisors.

Rolling returns are clearly a much better metric compared to just trailing or point-to-point, she said. “Rolling returns are essentially rolling the data, and essentially allow you to capture both the upside and the downside, much better than trailing.”

Dhawan said that while trailing will probably give you slightly anomalous return data, rolling will actually smooth it out and still have the weight and influence of ups and downs.

Using past returns as a parameter for evaluating mutual funds is problematic. Mahajan said this is because it is not a reliable indicator of the future and can fluctuate depending on multiple factors.

He lists the following Level 1 parameters to consider:

• Check our monthly fact sheets to see top sector allocations or stock allocation changes.

• The length of the fund manager’s tenure with the fund.

• Rolling returns are year-over-year.

• Drawdowns when markets have fallen in the past.

• Standard deviation and beta.

• Fund size by sector, mid-cap and small-cap categories.

“So I think all these parameters are very important. Once you’ve completed the exercise, you can maintain based on what’s going on,” he said.

Mahajan said participating investors need to understand what risks they are taking on the index.

“Standard deviation and beta, especially beta, show that. The benchmark is 1, so a beta of less than 1 means you’re less risky relative to the index. This means most funds are less risky. “It shows you’re not taking on more than that. You can outperform the index by taking less risk, which makes more sense,” he said.

With the new scheme, investors need to be a little cautious as assets under management are probably a concern, Dhawan said.

“The movement of large investors in and out of the system could be an impediment because they are large investors, but that is not the case for most of the large mid-cap and small-cap names,” he said. .

Mahajan recommends HDFC Mid-Cap Opportunity Fund as it has the price return parameters you would expect from a mid-cap fund. He said Parag Parikh Flexi Cap Fund is another fund to watch.