Being financially aware in this era of technological advancements is not a big deal with the plethora of information floating on the virtual cloud. What matters is how we use that to our advantage to achieve our financial endeavours in the best possible way. Attaining financial freedom encompasses several modules of ultimate goal planning, and treating each with the utmost importance is paramount to setting realistic goals and expectations.
Among the emerging connoisseurs of Personal Finance, one financial advisory institution that provides a comprehensive fusion of human psychology and the nuances of modern finance is 1 Finance. Apart from providing services like a personal financial planner and advisor at your fingertips, the institution is a promising avenue for motivating individuals to navigate their money choices according to their financial behaviour score.
This blog post is dedicated to one of the niche offerings of 1 Finance in the domain of mutual funds. As we all know, investments are synonymous with financial planning, and the most preferred form of investment in the Indian financial landscape is mutual funds. At 1 Finance, they not only undertake the basic financial management tasks related to investment planning, but they go the extra mile to provide a bird’s eye view of different mutual funds schemes currently available.
Simply put, mutual funds are investment machinery that invests your funds in a diversified portfolio managed by fund managers, and they are of three types: stocks, bonds, and money market funds. Almost 45 mutual fund companies are operating in India, providing more than a thousand mutual fund schemes; undoubtedly, choosing the right one can be a daunting task.
Therefore, at 1 Finance, you receive a comprehensive report card that assigns scores to these funds and provides rankings for them depending on several parameters. It is a one of a kind treasure trove in terms of deep-level insights; let’s decipher what factors they take into consideration:
- Use of fundamental ratio analysis with the key ratios known as Sharpe ratio, Treynor ratio, Sortino ratio and Jensen’s alpha.
- Sharpe is a metric-based calculation that determines how much money a mutual fund makes compared to risk tolerance. This ratio helps users determine if the fund is good enough to generate decent returns while minimising risk.
- Sortino ratio- similar to Sharpe ratio, but this ratio focuses more on the severely volatile factors of investments to let the investors gauge the gravity of adversities.
- Treynor ratio- determines the profit generated for each unit of risk taken and profit here refers to the excess return that is more than what was expected from a risk-free investment.
- Jensen’s alpha- is an investment report card that assesses the performance of an investment in comparison to what was predicted and also considering the current market conditions and risk factors associated with the investment type.
- Past performance of fund managers- Knowing your fund manager’s past performance is crucial to understand their mastery level for a particular scheme category. How much quantum alpha were they able to achieve, which means the extra money generated out of the investment
- Category of the funds- Since varying funds focus on different companies and sectors of different magnitudes (big and small), categorising them determines the kind of investments the fund should make. Also, in relevance to fund managers, it becomes easy to have a background check on them on how well they performed while managing a particular fund in question.
Looking for a holistic financial plan attuned to your demeanour? It may be time to reach out for a financial concierge service plan that helps you streamline the financial complexity of your life by navigating through the intricacies of financial planning that encapsulates insurance planning, wealth management, will planning, retirement planning etc.
The facts mentioned above about the scoring system of mutual funds might come in handy before you zero down on any mutual fund investment scheme. Even if you aim for liability planning to manage your debts and control future expenses, investing in mutual funds could be a great start, provided you have done your homework well in advance.
