Two mutual funds can show similar past returns while holding different assets, charging different costs and carrying different risks. Start with the goal, the date you need the money and the loss you could absorb. Then compare schemes that serve the same purpose, using documents from the same period.
1. Compare the objective and holdings
Read the investment objective and the latest portfolio disclosure. Note the main asset classes and where the scheme takes its largest exposures. For example, a fund concentrated in one industry can behave differently from a diversified fund, even when both appear under a broad equity label. For a debt fund, check the quality and maturity of the holdings alongside the stated objective.
2. Check the current Riskometer
Record each scheme’s Riskometer level and the date of the disclosure. SEBI describes six levels, from low to very high. The label gives you a starting point for examining the underlying risks and can change over time. If two schemes have the same label, compare their holdings to understand what could drive losses in each.
3. Compare costs and withdrawal terms
Use the same plan type and option when comparing figures. Record the total expense ratio and check the scheme documents for any exit load that applies to your planned withdrawal date. When comparing published NAV-based returns, check the return methodology before adjusting for fees. Deducting a cost that is already reflected in the NAV would count it twice.
For an illustration, suppose units worth ₹50,000 are redeemed and a 1% exit load applies to the entire redemption. The load is ₹500 and proceeds are ₹49,500 before any tax or other deductions. An actual exit load can depend on the scheme and the purchase dates of the units. Use the scheme’s terms for each purchase when reviewing a withdrawal from an SIP.
4. Run a downside scenario
A ₹1,00,000 investment that falls 20% is worth ₹80,000. It then needs a 25% gain on that smaller balance to return to ₹1,00,000. For money needed on a fixed date, consider what happens if the fall occurs just before you need to redeem. A smooth growth projection won’t show that timing risk.
5. Keep the calculator assumptions consistent
Use the SIP calculator for regular contributions and the lump-sum calculator for a single contribution. Write down when the cash is available, the time horizon, the return assumption and whether your figures include costs or taxes. A single payment invested today and instalments funded from future income have different cash flows. See the SIP versus lump-sum comparison for more on that difference.
Keep a record of each scheme’s objective, Riskometer date, expense ratio, exit load and planned withdrawal date. Recheck those details before acting. The examples are for education and use hypothetical figures.
Sources: SEBI Investor Riskometer guide and SEBI Investor mutual fund guide. Browse more resources in the Investment and Retirement Planning hub.
