Summary of "How to pick the BEST MUTUAL FUNDS? (Step by Step)"
Summary: How to Pick the Best Mutual Funds (Step-by-Step Guide)
The video presents a detailed, systematic approach to selecting the best mutual funds within any category (e.g., Flexi Cap, Small Cap) by filtering and analyzing funds based on multiple financial metrics. The goal is to identify funds that provide consistent returns with manageable risk, avoiding those with occasional high returns but excessive volatility or costs.
Main Financial Strategies and Business Trends:
- Focus on consistent returns rather than occasional high returns.
- Use a Mutual Fund Screener (TikT’s screener recommended) to filter and analyze large numbers of funds efficiently.
- Emphasize long-term performance (5-year and 10-year data preferred) for riskier categories like Flexi Cap.
- Evaluate funds not only on returns but also on risk-adjusted returns and volatility.
- Consider fund manager stability and experience as a critical factor.
- Avoid frequent switching of funds to minimize tax impact, exit loads, and loss of compounding benefits.
- After selecting individual funds, focus on portfolio construction to manage overall risk and optimize buy/sell timing.
Step-by-Step Methodology to Pick Top Mutual Funds:
- Choose a Mutual Fund Screener Use a reliable screener (TikT’s screener recommended) to start filtering funds.
- Select Fund Category For example, pick “Flexi Cap” or “Small Cap” equity mutual funds.
- Apply Initial Filters
- Remove non-equity funds (commodity, debt, hybrid, etc.).
- Narrow down from thousands to a manageable number (e.g., 41 funds in Flexi Cap).
- Filter Based on Performance Metrics
- CAGR (Compound Annual Growth Rate) for 3, 5, and 10 years.
- Returns relative to category average for 3, 5, and 10 years (ratio >1 means outperformance).
- Focus on Rolling Returns Use 3-year average annual rolling returns to assess consistency over multiple periods, not just point-to-point returns.
- Evaluate Risk-Adjusted Metrics
- Exclude Funds Without Long-Term Data Remove funds lacking 5-year or 10-year performance data to focus on established funds.
- Analyze Fund Details
- Check fund’s maximum drawdown, expense ratio, exit load, portfolio composition (diversification, sector allocation, PE/PB ratios).
- Assess fund manager’s experience and any recent management changes.
- Compare Top Funds Side-by-Side
- Use screener’s comparison tools to evaluate returns, risk, cost, and concentration.
- Eliminate funds that are overly concentrated, have high costs, or excessive volatility.
- Final Selection Based on Investor Profile
- Aggressive investors may tolerate higher volatility funds with higher returns but lower Sharpe ratios.
- Conservative investors should prefer funds with a better balance of returns and risk (high Sharpe ratio, lower volatility).
Additional Key Insights:
- Do not switch funds every year chasing the top-ranked fund; this leads to higher taxes, exit loads, and loss of compounding benefits.
- Expense ratio is important but secondary to returns and risk metrics; prefer low-cost funds with good returns.
- Portfolio-level risk management is essential—individual good funds alone are not enough.
- The methodology applies across categories (demonstrated with Flexi Cap and Small Cap examples).
Presenters / Sources:
- Presenter: Money Minded Madip
- Tool Used: TikT’s Mutual Fund Screener (sponsored by TikT)
- Channel: Minutes of Mutual Funds
This structured approach empowers investors to systematically filter, analyze, and select mutual funds that align with their risk tolerance and investment horizon, leading to better long-term wealth creation.
Category
Business and Finance
