Mutual Fund Analysis Methodology

Published on: 26 Oct, 2021 04:19

Snapshot

This post will describe the methodology used for different calculations on this website.


Rolling Return


On this website following rolling returns for funds are displayed:

  1. 1-month rolling returns
  2. 3-month rolling returns
  3. 6-month rolling returns
  4. 1-year rolling returns, and
  5. 3-year rolling returns

To calculate rolling returns following formula is used:

Rolling Return Formula
Here n (time period) for each rolling return is as follows.

Rolling Returns

Time Period NAV Data

1-month rolling returns

13 months

3-month rolling returns

15 months

6-month rolling returns

18 months

1-year rolling returns

36 months

3-year rolling returns

60 months

 

 


Fund Ranking Method 

Fund Eligibility to be ranked

Each category must have 10 funds which are a minimum three-year-old. We do not consider AUM (Asset Under Management) as a criterion. Three-year data is used for ranking.

Rank Calculation

The fund is ranked based on the total score obtained for returns, risk, and risk-adjusted factors. The process for obtaining a ranking score for the fund is as follows:

  1. Calculated funds factor
  2. Calculate the mean and standard deviation for category
  3. Obtain the p-value for the fund using the mean and standard deviation of the category and factor value of the fund. 
  4. Multiply the p-value of the fund with the weight of the factor.

Return

For return score calculation rolling return of the fund and percentage-positive returns are used.

Risk

For risk score calculation, VaR, standard deviation, and drawdown are used.

Risk-Adjusted Return

For risk-adjusted score calculation, Sharpe ratio, Sortino Ratio, and alpha are used.




Small cap mutual funds, as defined by SEBI and AMFI, primarily invest in companies ranked 251st onwards in terms of market capitalization. They offer high growth potential as they invest in smaller, growing companies that could yield high returns. Moreover, they can uncover undervalued stocks that are often under-researched. Small-cap funds also bounce back quickly from economic downturns due to their adaptability. However, they have drawbacks like high volatility, and liquidity risk, and require a longer investment horizon. Although they carry significant risk, with informed decision-making, a clear understanding of the risk-reward paradigm, and guidance from skilled fund managers, they can contribute significantly to wealth creation.
 

Large-cap mutual funds invest in large, established companies, offering investors the potential for consistent returns and lower risk due to their stability and diversification across sectors. These funds, managed by professional fund managers, also offer high liquidity and the potential for regular dividend payouts. However, drawbacks include limited growth potential, as these mature companies operate at or near their peak in saturated markets. Also, they aren't immune to economic downturns and offer less control to investors over their investments. The suitability of these funds depends on an individual's financial goals, risk tolerance, and investment horizon.

  1. Money market mutual funds invest in short-term, high-quality debt instruments, aiming to maintain a stable value.
  2. Advantages include safety and stability due to high-credit-rating investments, high liquidity with typically penalty-free withdrawals, diversification across various debt instruments, and modest interest earnings.
  3. Disadvantages encompass lower returns compared to riskier investments, lack of government insurance, vulnerability to inflation risk, management fees that can eat into returns, and the potential for negative yields in periods of extremely low or negative interest rates.


For Any Question Join Our Group On Facebook

Bmsmoney Highlights