3 easy steps while selecting #mutualfunds
Reference of POWER FRAMEWORK 👇
Nippon India Mutual Fund has developed a simple to understand and easy to implement framework called PoWER that can help you choose the right Mutual Fund in a given category.
Here is what PoWER stands for:
PO: First thing to check is the performance over benchmark. This will assure you that the performance of the chosen scheme is better than benchmark. Every active mutual fund scheme has a benchmark that it aims to beat. Any scheme that consistently beats its benchmark index returns since inception can be considered. Please note that past performance may or may not be sustained in future.
W: The second parameter W stands for Wide Investor Base i.e. number of investors that the fund has. This is an important parameter as it underlines that many investors have put their faith in a particular fund. Although it is not always true that a popular mutual fund scheme is also the best one, but the number of investors in a scheme does give you the confidence of which scheme to select.
E: Experience across Multiple Market cycles: This is one of the important parameters which may be considered for Mutual Fund investments. This parameter highlights the total number of years the fund has been in existence and how has the experience been of traversing multiple market cycles.
A lot of research and analysis goes behind the selection of the right stocks to pick for any mutual fund scheme. And this selection is largely dependent and affected by the expertise of the people doing this activity. Here is where the experience of an AMC comes into the picture
R: This stands for Right-sized Assets Under Management. Very large AUM can sometimes be a deterrent in Fund Manager’s ability to generate alpha. Too small an AUM could also be a problem at times.
So, here it is, the POWER framework which makes it easy for you to select the right mutual fund scheme. You should apply this framework once you have identified what type of mutual fund you want to invest in based on your investment objectives and risk appetite.
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