Check Volatility using Beta Co-efficient
Beta Coefficient is used as a measure to check the relative sensitivity of a mutual fund to the market. The higher value of the beta means that the more volatile the fund. It is then considered to very sensitive relatively to the market as a whole. BSE sensex is assigned a beta of 1. It has been widely used by many investors and analysts to determine just how volatile a mutual fund is as compared to a standard index. In India the standard of comparison is provided by SENSEX index. Its usual time frame is three years back. A stock fund that is 20% more volatile than the stocks of that constitute the SENSEX would have a beta value of 1.2. Those stock funds that are 15% less volatile than the SENSEX would have a beta of 0.85.
Beta is not a totally indicative depiction of a stock fund’s situation. If a fund is “thinly traded,” or in other words there are not too many shares outstanding, large price swings are possible whenever shares are sold. In general, beta values are a good & reliable way of determining how a stock fund has done, and in a way, how well it may do in the future. Beta values for many Indian mutual funds can be found in many financial magazines, fianacial websites or special investing periodicals.
Find out the Risk vs. Reward using Alpha
Risk and Reward is direcly proportional. It depends on how much of a risk-taker you are is directly proportional to how much you stand to gain or lose. Risk vs. Reward is a concept that almost all investors struggle with and are aware of.
Alpha is the relationship between a fund’s beta value and its actual performance. Higher alpha values are considered better. Anything above zero is desirable.
Net Asset Value
Net asset value or generally known as NAV of a mutual fund is the price per share/unit. The NAV of a mutual fund is calculated by taking the value of the securities that the fund is managing and dividing that by the number of shares outstanding. For example a mutual fund with net assets of Rs 2.5 crore and 10 lakh shares outstanding has a NAV of Rs 25.
Important points to note on the Prospectus
When you get a prospectus along with the application of a mutual fund, please note the following most important aspects: Date of issuance, minimum investment, objective, record of performance, degree of risk and fees.
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