Cracking The Code: A Guide To Highest Return Mutual Fund

Mutual fund investments offer liquidity, diversification, flexibility and expert fund management. They can also be great starting points for beginner investors as they come in many types. Of these types, we will be discussing high-return mutual funds.

Read on to learn how to find the highest-return mutual fund and the strategies you can employ to get high profits!

Defining High-Return Mutual Funds

High-return mutual funds are also called equity funds. They invest at least 65% of their funds in company stocks from various market sectors to deliver high returns.

Analysing Historical Performance

• Compare the mutual fund against a benchmark. The benchmark must match the type of mutual fund you are comparing it with. For example, with a large-cap equity mutual fund, you need to compare it with an index like Nifty50 since it tracks the top 10 companies in India.
• Compare its performance history. Your fund should have a history of at least 5 to 10 years and its performance should align with its expected returns. For example, during a downturn, the fund has done relatively well if it lost 8% returns while its benchmark lost 10%.
• Check its NAV history over 5 to 10 years. If there is no sharp fall, the mutual fund has been providing consistent returns.

Types of Mutual Funds

• Equity: These funds invest 65% of their total funds into stocks. Their returns depend on how the stock market performs. These funds give higher returns at a higher risk.
• Debt: These funds invest in fixed-income securities like government bonds and securities, treasury bills, etc. These offer sustained returns at a low risk with comparatively lower returns.
• Hybrid: These funds invest in a mix of debt and equity securities. Based on their investment ratios, hybrid funds can be divided into balanced or aggressive funds.
• ELSS: These are equity-linked savings schemes that offer tax deductions on their investments. They have a lock-in period of 3 years, after which you can redeem/sell your fund for a profit.

Expense Ratios and Fees

It is essential to look into fees mutual funds charge, as higher fees will affect the total profit when redeeming your fund.

• Transaction Charges: A fee of ₹100 – ₹150 will be charged once for investments on or above ₹10,000. This applies to SIPs and lump-sum investments.
• Expense Ratio: This is an annual fee the asset management company charges for managing/running the mutual fund. It is a percentage of a fund’s daily net assets and is deducted from your investment amount daily. You don’t need to pay it separately.

The SEBI has limitations on how much AMCs can charge for their expense ratios. Usually, the expense ratio is higher for regular plans and lower for direct plans.

Manager Expertise and Strategy

Check if the fund manager could deliver results aligned with or outperformed the general market. You can also check their tenure on the fund company’s website.

Moreover, compare the Sharpe Ratio. Funds with a higher than category average Sharpe ratio show that the fund manager delivered high returns for the risks taken. So, if two mutual funds offer similar returns, go for the one with the higher Sharpe Ratio.

Monitoring and Review

Regularly review and monitor your fund’s performance against its benchmark or the index it tracks. This can indicate when it may be time to redeem your fund and shift to other funds or investments.

Almost every investment platform in India allows you to invest, track and redeem your funds online, making your investment process much easier. Paired with the strategies stated in our guide, you can invest in your high-return mutual fund with confidence.