We all know about Mutual Funds, SIP investing. We all have thought of investing or have already invested in mutual fund to cater to our financial goals. But do you how to select a mutual fund scheme? Did you what alpha and beta means in mutual fund? Let's see in this article what this is all about. A piece of information before we start, investing in mutual fund is easier that investing in Fixed deposit.
So let's assume you have decided to invest in mutual fund, selected some of top performing funds but to come to final decision and select one from shortlisted funds you need to check few metrics, match it according to your time period and then decide your choice of fund. Let's do this with a example so that you can follow it step by step on your choice.
Suppose there is fund A which gives 13% returns and there is fund B that also gives 13%. In such case you need to watch for Beta and Alpha of both the funds, let's say if fund A has 0.6 beta, that means every time market will fall by 1, fund A's NAV will decline by 0.6 which is a good thing. And if fund B has 1.2 beta than a obvious choice would be fund A. Now looking at Alpha of fund A, if it is 1.3, then it means than every time Nifty gain 1 fund A gains 1.3. Now if fund B has Alpha of 1.1 then you should go for fund A.
Suppose fund A has 13%, returns but fund B has 15% returns now these two shouldn't be compared on basis of Alpha or beta in normal scenario but if you are to invest by taking a horizon of 5 or more years than you should use Model A method.
You can search Alpha and beta value of fund on Google.
In conclusion, lower the beta, the better. And higher the Alpha, the better. A last line of advice whenever you invest for a long term, always look for lower beta as there are more chances of market correction in long run.
Disclaimer - Above information is to spread financial literacy. We are not SEBI registered financial advisor, kindly consult your financial advisor before taking any investment decision.
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