• By Shreyansh Mangla
  • Mon, 18 Aug 2025 06:44 PM (IST)
  • Source:JND

Mutual Funds Investment: Today, mutual funds have become a common investment route in many people's portfolios. A mutual fund is an investment vehicle, managed by a professional fund manager, that pools money from many investors to purchase securities like stocks and bonds. The goal of this pooled investment is to generate returns for the investors.

Through mutual funds, one can get an estimated return of 12 per cent to 14 per cent. These returns however depend heavily on market fluctuations. Before investing in a mutual fund, you should first assess the level of risk associated with your chosen fund.

One can assess the risks involved in a fund in a few ways. Beta, Standard Deviation and Sharpe Ratio are some of the most widely used metrics to measure the risk and performance of mutual funds. They help investors understand how volatile a stock or fund is and how well it has performed despite that risk.

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Beta

Beta measures a fund's volatility in relation to the overall market. If a fund's beta is less than 1, it is considered a low-risk fund. If it is greater than 1, it is considered a high-risk fund.

Standard Deviation

Standard deviation is a useful metric when comparing two funds. The lower the percentage, the lower the risk involved. For example, if one fund has a standard deviation of 5 per cent and the other has 10 per cent, the first fund is less risky.

Sharpe Ratio

The Sharpe Ratio helps investors understand the risk-adjusted return of a fund. If the Sharpe Ratio is less than 1.00, the risk-adjusted return is low. If the Sharpe Ratio is between 1.00 and 1.99, the risk-adjusted return is normal. Similarly, if the Sharpe Ratio is between 2.00 and 2.99, the risk-adjusted return would be "high." If the Sharpe Ratio is greater than 3, the risk-adjusted return is very high.

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Points To Keep In Mind Before You Invest

Fund Performance: When choosing a fund, it's essential to compare returns from different years, not just 1, 2, or 3 years. This will give you a better idea of a fund's long-term performance and stability.

Pay Attention to Charges: Mutual funds often have various additional charges that investors overlook. These charges include the expense ratio, exit load, and management fees. Companies usually charge an exit load when an investor withdraws money within a specified period (e.g., one year). Make sure to read every document, electronic or hardcopy, word for word before investing in any fund. Ensure you understand each and every policy and condition expressed by the company. Also, it is advisable to consult a mutual fund expert in addition to doing your own research.

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Comparing Funds: You should never compare funds of different categories, as this can lead to confusion. Comparing similar funds is a more effective approach.