Module Name

Mutual Fund Scheme Selection

April 8, 2022
 Objectives
By the end of the session you will be able to:
• Understand the scheme selection based on investors
need, preferences and risk-profile
• Know the risk level in mutual fund schemes
• Get clear idea on how to select the scheme based on
investment strategy of mutual fund
• Know the Fund performance, fund portfolio, fund age,
fund size, portfolio turnover and scheme expenses
• Understand the selection of mutual fund scheme offered
by different AMCs or within the scheme category
• Get clear idea on selecting options in mutual fund
schemes
• Recognize the dos and donts while selecting mutual
funds schemes
Scheme Selection Based on Investor Needs, Preferences
and Risk Profile

Core & Satellite Investor Need

Portfolio

Investment Time Risk Profile Of

Horizon Investor

Age Of The Investor Asset Allocation

3
Risk Return Hierarchy of Mutual Funds

Equity
Funds
Hybrid
Funds
Debt
Funds
Liquid
Funds

4
Risk Return Hierarchy of Debt Funds

Long
duration
Medium to funds
long duration
Medium funds
Short duration
Low duration funds
duration funds
Ultra short
duration funds
Liquid funds
funds
Overnight
funds

5
Hierarchy of Credit Risk in Debt Funds

Credit
Risk
Corporate Funds
Bond Fund
Banking
and PSU
Fund
Guilt
Fund

6
Risk Return Hierarchy of Equity Mutual Funds

Small Cap
Funds
Mid Cap
Funds
Multi Cap
Funds
Large and
Mid Cap
Large Funds
Cap
Funds

7
Risk Return Hierarchy of Diversified to Concentrated
Funds

Sector
Funds
Thematic
Funds
Focused
Funds
Diversifie
d Funds

8
Risk Return Hierarchy of Hybrid Funds

Aggressive
Hybrid Fund
Balanced
Multi Asset Hybrid Fund
Allocation Fund
Dynamic Asset
Allocation Fund
Conservative
Hybrid Funds
Equity
Savings
Arbitrage Fund
Fund

9
Scheme Selection Strategy: Active v/s Passive Funds

ACTIVE PASSIVE
With fund manager’s risk Without fund manager’s risk
Returns expected to be more than market Returns expected to be in line with market
Portfolio selection risk No Portfolio selection risk
High fund management cost Low fund management cost

Works with an investment strategy No investment strategy, simply mimics the market
Aggressive objective Modest objective

10
Scheme Selection Strategy: Open v/s Close Ended Funds

OPEN-ENDED CLOSE-ENDED
Liquidity available Liquidity available through stock exchange

Price of units at exchange may be lower

Units bought and sold at NAV
than NAV

Investor’s can exit the fund anytime Investors need to match the maturity with
investment horizon
Higher levels of liquid assets, diluting No need for liquid assets in a portfolio
the returns

11
Scheme Selection Strategy: Diversified v/s Sector /
Thematic Funds

DIVERSIFIED SECTOR / THEMATIC

Multi sector exposure Concentration in single sector/theme

Less risky More risky

Time-in generates returns Timing generates returns

Suitable for Core portfolio Suitable for a Satellite portfolio

12
Scheme Selection Strategy: Large Cap v/s Mid v/s Small
Cap

LARGE CAP MID/SMALL CAP

Established companies Initial stage of growth

Withstand economic downturn Fall behind in economic downturn

Less risky More risky

Moderate return when economy recovers Higher returns when economy recovers

13
Scheme Selection Strategy: Growth Funds Or Value Funds

GROWTH FUNDS VALUE FUNDS

Pick companies that are expected to grow Pick companies that are now cheap er than
higher than market
their actual valuation

Withstand economic downturn Fall behind in economic downturn

Outperforms in bull market Ability to do well in falling market also

14
Scheme Selection Strategy: International Equity Funds
Suitable be part of Exposure to international
satellite portfolio. equity along with exposure
to exchange rate of rupee.

Can invest if overall

Can invest to diversify
returns (International
domestic investments with
equity + exchange rate
international investments.
movement) is attractive.
15
Scheme Selection Strategy: Fixed Maturity Plans
Ideal when investor’s investment
horizon matches with the fund’s
maturity.

Not suitable if funds may

be required anytime. More predictable returns
than conventional debt.

An element of portfolio risk

comes from exposure to
corporate debt. Superior returns than FDs.

16
Scheme Selection Strategy: Short Duration Funds

Invest in securities
maturing between 1
and 3 years.
Some funds may take
a little exposure in
long term debt to
benefit from interest
rate declines. When the interest rates
are expected to go up
then short term debt
can be a good option.
Less volatile and
can be a part of
the Core portfolio.

17
Scheme Selection Strategy: Liquid Schemes

Low volatility
and high Lowest risk
liquidity

Not advised
for longer
periods as Low returns
investor
will needlessly
lose on higher
returns

Comparable
Suitable for
to savings
parking of funds
bank account

18
Scheme Selection Strategy: Floating Rate Funds

Steady NAV even when interest

rates are fluctuating

Accrual strategy v/s higher income

strategy

Investor should check the strategy

before investing

Some funds focus on earning a

higher total return, i.e. appreciation
as well as income

Fund managers change the duration of

the fund based on expectation of interest
rate movements

19
Scheme Selection Strategy: Hybrid Schemes
May be taxed as debt or equity
Diversification across asset
scheme depending on the
portfolio mix. 01 classes in one scheme.

02
06
Caution required for flexible Invest in a mix of debt and
asset allocation schemes. equity.

03
05
Good for equity exposure, 04 Equity for appreciation and
but with lower risk.
debt for income.

20
Scheme Selection Strategy: Gold Funds

Gold ETF is an efficient way Gold ETF not the same as

of taking exposure in gold. Gold Sector Funds.

Gold ETF tracks the Gold Sector funds invest in

return on price of gold. gold mining and gold
processing companies.

21
Selecting A Scheme Within A Scheme Category

01 02 03 04 05 06

Fund Fund Fund Fund Portfolio Scheme

Performance Portfolio Age Size Turnover Expenses

22
Fund Performance
Cumulative Performance Primary Criterion In
(CAGR) For Last 1/3/5 Scheme Selection
Years And Since Inception

Returns Generated
Fund’s Performance Vis- Relative To Its
a-vis Peer Group Benchmark

Performance Seen For

Long-term debt funds to be
Long Periods, At Least
seen for at least last 3 years
Last 5 Years

23
Fund Portfolio

Equity
▪ Level of diversification,
▪ Market segment,
▪ Extent of cash held,
▪ Portfolio churn and strategy
adopted.

Debt
▪ Average maturity,
▪ Duration of portfolio,
▪ Credit risk profile,
▪ Contribution of interest and
capital gains in total returns
and liquid holding in the
portfolio.
24
Selecting Option Within One Scheme

Dividend Payout

Taxation and
Liquidity are the
Dividend Re-investment main factors to
decide on the Option
to be chosen

Growth

25
Do’s and Don’ts in Selecting Mutual Fund Schemes
Investment Consistent
Objective and Methodlogy for
Investors Asset Investment Strategy Scheme
Allocation of Scheme Selection

01 03 05
02 04 06

Chasing Past Taxes and Loads

Suitability
Peformance

26
Summary:
• In order to evaluate and select various
mutual fund schemes, it is important to take
a look at the risk-return profile of the various
scheme categories.
• For the purpose of selection of mutual fund
schemes, the investment objective, the
investment strategy and the portfolio
characteristics are important factors.
• An investor has to be comfortable with the
AMC, before investing in any of its schemes.
Thank you