Quick Mutual Fund Performance Checklist

Simplified Approach for Common Investors

For those new to mutual funds, start by emphasizing historical returns, Sharpe ratio, fund manager tenure, and benchmark outperformance. This is often enough for a solid decision without diving into more complex ratios.

These key points simplify fund selection, allowing a focus on consistency, risk-adjusted performance, and management quality—making it easier to guide investors Confidently. 

Here’s a summary of mutual fund performance metrics along with standard selection indicators to help compare and select funds effectively:

Mutual Fund Performance Metrics and Selection Indicators

(A) 

1. Metrics : Historical Returns

2. Description : Measures Funds Returns over various periods i.e. 1 year, 3 year, 5 year, 10 year or since inception. 

3. Selection Indicator: Consistent Return above Benchmarks and Peers for 3-5 years. 

(B)

1. Metrics: Rolling Returns

2. Description: Calculates Returns over regular intervals (e.g. 3 years rolling) for consistency check. 

3. Selection Indicator: Consistently High Rolling returns over time, showing steady performance. 

(C)

1. Metrics: Sharpe Ratio

2. Description: Risk adjusted Return indicating returns per unit of total Risk

3. Selection Indicator: Higher Sharpe Ratio Indicates better Risk adjusted Returns ( Aim for Abouve 1.0)

(D)

1. Metrics: Sortino Ratio

2. Description: Focuses on Downside risk only, for conservative assessment of Risk Adjusted Returns. 

3. Selection Indicator: Higher Sortino Ratio is preferred for minimal downside risk exposure. 

(E)

1. Metrics: Jeson Alpha 

2. Description: Shows the excess returns of the fund over its benchmark, indicating fund manager's added value

3. Selection Indicator: positive alpha suggest that the fund is outperforming its benchmarks. 

(F)

1. Metrics: Beta 

2. Description: Measures Fund volatility relative to the benchmark ( 1 = same as the Benchmark) 

3. Selection Indicator: Beta near 1 for Market Matching Funds, < 1 for lower Volatility, >1 for Higher Volatility 

(G)

1. Metrics: Standard Deviation 

2. Description: Indicates Volatility, Showing how much fund returns deviates from the average. 

3. Selection Indicator: Lower standard deviation for stability, especially in Debt and Conservative Funds. 

(H)

1. Metrics: Expense Ratio

2. Description: Represents the Annual Fees percentage deducted from Fund Returns

3. Selection Indicator: Lower Expense Ratio within the category (Aim for below 2% for equity funds) 

(I)

1. Metrics: Fund Manager's Tenure

2. Description: Tracks the experience and duration of the fund Manager with the fund. 

3. Selection Indicator: 3+ years of tenure with consistent performance preferred for stability. 

(J)

1. Metrics: Benchmark Comparison 

2. Description:  Compare fund returns to a standard index or Benchmark

3. Selection Indicator: Above benchmark performance over time (3-5 years) 

(K)

1. Metrics: Draw Down

2. Description: Measures Peak-to-trough decline, assessing the funds worst performance phase. 

3. Selection Indicator: lower drawdown preferred, especially for risk averse investors. 

How to Use These Indicators for Quick Selection

1. Filter by Historical and Rolling Returns: Select funds that have consistent returns above the benchmark and peers.

2. Risk-Adjusted Returns (Sharpe and Sortino Ratios): Aim for funds with high Sharpe and Sortino ratios to ensure returns justify the risk.

3. Alpha and Benchmark Outperformance: Look for positive alpha and funds consistently beating their benchmark.

4. Expense Ratio and Manager Tenure: Focus on low expense ratio and manager stability for sustained performance.

This checklist should simplify fund comparison and help you guide investors in selecting funds that meet both performance and risk standards.

By focusing on these indicators, you can get a solid understanding of a fund’s return potential and consistency.