Investors should not only consider raw returns when evaluating mutual funds .
Investor needs to have a look at the below as well
- Alpha generation : Each mutual fund is associated with a benchmark index such as the Nifty 50, Nifty 100, or Midcap 150. Outperformance/ Alpha generation is measured against these indices.
- Risk-Adjusted Returns: Metrics like Alpha (excess return) and Beta (volatility in the market) indicate whether higher returns are attributed to genuine skill or excessive risk.
- Costs : High expense ratios can erode even funds that generate some alpha, resulting in a loss of returns after costs.
- Consistency: Academic research suggests that “winner” funds often lose their status over time. winner funds are not constant . Winner funds change every year .