MUTUAL FUNDS

 

Example: Mutual Fund Analysis

1. Fund Objectives and Category:

• Suppose we are analyzing the "ABC Equity Fund".
• Category: Equity Fund.
• Objective: To achieve long-term capital growth by investing primarily in large-cap Indian stocks.

2. Performance Metrics:

• Net Asset Value (NAV): The value per share/unit of the mutual fund.
• Historical Performance: Evaluate the past performance over different time frames (1 year, 3 years, 5 years).

3. Expense Ratio:

• The annual fee charged by the mutual fund expressed as a percentage of the fund’s average assets.
• Suppose the expense ratio for the ABC Equity Fund is 1.5%.

4. Risk Measures:

• Standard Deviation: Measure of the fund's volatility.
• Beta: Measure of the fund's sensitivity to market movements.
• Sharpe Ratio: Measure of risk-adjusted return.

5. Portfolio Composition:

• Analysis of the sectors and stocks in which the fund has invested.

Calculating Mutual Fund Returns

Let’s calculate the returns for an investment in the ABC Equity Fund over 1 year.

1. Initial Investment:

• Suppose you invested ₹10,000 in the ABC Equity Fund on 1st July 2023.
• The NAV on 1st July 2023 was ₹50.

$$\text{Units Purchased} = \frac{\text{Initial Investment}}{\text{NAV at Purchase}} = \frac{₹10,000}{₹50} = 200 \text{ units}$$

2. NAV After 1 Year:

• The NAV on 1st July 2024 is ₹60.

3. Value of Investment After 1 Year:

$$\text{Value of Investment} = \text{Units Purchased} \times \text{NAV at the End of Period} = 200 \times ₹60 = ₹12,000$$

4. Calculating Returns:

• The return on investment can be calculated using the formula:

$$\text{Return} = \left( \frac{\text{Value of Investment} - \text{Initial Investment}}{\text{Initial Investment}} \right) \times 100$$ $$\text{Return} = \left( \frac{₹12,000 - ₹10,000}{₹10,000} \right) \times 100 = 20\%$$

Summary

• Initial Investment: ₹10,000
• Units Purchased: 200
• NAV after 1 Year: ₹60
• Value of Investment after 1 Year: ₹12,000
• Return: 20%

By performing this analysis and calculation, you can understand the performance and potential returns of a mutual fund investment. Additionally, consider other factors like the fund manager's track record, market conditions, and economic outlook when making investment decisions.