In this second part about in Mutual Funds series, know all about risks & returns while investing in Mutual Funds

1. MUTUAL FUNDS KNOWLEDGE SERIES
Returns, Risks & Investing in Mutual Funds

2. Table of Contents
Returns in Mutual Funds
Types of Returns in Mutual Funds
Calculating Returns in Mutual Funds
Risk in Mutual Funds
Measuring Mutual Fund Risk
Ways to invest in/redeem from Mutual Funds
Parameters for Selecting Mutual Funds
Riskometer in mutual funds

3. Returns in Mutual Funds
Returns are the key indicators of the investment performance in mutual fund and are
calculated from the historical NAVs. By comparing returns, the investor will get the fair
idea about the fund whether it is suitable for achieving his financial goals

4. Types of Returns in Mutual Funds
• Unit holders earn dividends on mutual funds, which are declared from
distributable income
Dividends
• Investors get capital gains on mutual funds. If the fund sells securities
that have appreciated in value, it earns capital gains. Most funds distribute
these capital gains also to investors
Capital Gains

5. Calculating Returns in Mutual Funds
Point to Point
Returns
• Returns are calculated
by considering the NAVs
at two points in time-
entry date and exit date
• Most common method
to interpret the
investment performance
Rolling
Return
• Rolling returns measure
the consistency of the
returns of the funds
• Returns are calculated
on a continuous basis
for each defined interval
XIRR
• XIRR is an excel
calculation method
which is used to
measure the SIP
performance of the
schemes

6. Risk in Mutual Funds
• Investments in shares, debentures and deposits are not always risk-free.
• A very important risk involved in mutual fund investments is the market risk. When
the market is in doldrums, most of the equity funds will also experience a downturn
• Some of the other risks include Industry risk, Credit Risk, Inflation risk, Interest rate
risk, Fund Manager Risk, Country risk, Currency Risk, etc

7. Measuring Mutual Fund Risk
Standard Deviation
• Measures the fluctuation in periodic returns of a scheme in
relation to its own average return
Beta
• Measures compares a mutual fund's volatility with that of a
benchmark
Sharpe Ratio
• Quantifies how a fund performs relative to the risk it takes
Alpha
• Measures the performance of the fund manager on
generating excess returns than the benchmark

8. Ways to invest in/redeem from Mutual Funds
Systematic
Investment
Plans
• In SIP, one can invest a fixed sum of money in a
particular scheme at predetermined periodical
intervals of time
Systematic
Withdrawal
Plans
• SWPs can be used to regularly disinvest either fixed
amounts or some or all of the appreciation that is
generated from your investment in the scheme
Systematic
Transfer
Plans
• Through STPs you can transfer fixed amounts of
money at regular intervals (monthly or quarterly)
from one scheme to another

9. Parameters for Selecting Mutual Funds
Investment
Objective
Risk profile
Fund
performance &
management
Fund size
Fund costs

10. Riskometer in Mutual Funds
The SEBI introduced a pictorial meter named "Riskometer" and this meter would
appropriately depict the level of risk in any specific scheme. The mutual funds would
need to mention the risk level of a scheme through that Riskometer

11. For any further queries, visit
www.hdfcsec.com