7 key metrics every investor should check while comparing mutual funds

A moment occurs in every investor’s journey when the excitement of starting humbly gives way to the responsibility of choosing. You open a mobile, search for a suitable fund and — suddenly — you are staring at dozens of options with similar names and promises. Choosing the right fund is not only about chasing returns, but also about understanding what it can do to your finances and your life. That’s where the effort to compare mutual funds becomes much more meaningful than it looks at first.

Needless to say, it is paramount for a potential investor to compare mutual funds before hoping to grow wealth steadily.

When an investor compares well, they are not just picking the best performer of the season but choosing the fund that’s most likely to stay aligned with their long-term financial goals. Think of this as a practical guide, one that gives you just enough clarity to make confident choices without drowning in jargon.

Read on to learn about seven key metrics that genuinely matter while making the right mutual fund choice.

Historical Returns: Fund behaviour

You may have heard this in one form or another: Past performance can’t predict the future.

However, what past performance can surely do is reveal a fund’s personality.

• Did a fund grow money steadily or in spurts?
• Did it weather difficult market phases?
• Did it outperform its category, benchmark, neither or both?

Instead of just checking the one-year number, it is always better to look across three- and five-year returns as well as market-cycle returns. Funds that are able to stand their ground or limit losses in tough market periods tend to display a kind of stability and disciplined management that investors usually value in the long run.

Expense Ratio: Silent cost that shapes long-term wealth

Your returns don’t just grow unidirectionally; they also shave, little by little, from time to time. This is because of operational charges. The expense ratio is that very part of a mutual fund that quietly decides how much of your money actually stays invested.

A lower expense ratio isn’t automatically better as such, but when two similar funds compete neck-to-neck, the one with lower costs tends to create marginally better long-term outcomes. Over longer periods, say 10-15 years, even a small difference can add up meaningfully — such is the power of compounding.

AUM Size: Larger isn’t always better but often safer

Do you know what Assets Under Management (AUMs) mean? Well, it is a powerful metric that tells you how much money a fund manages overall. Although a higher AUM doesn’t guarantee performance, it certainly signals trust — thousands of investors have already put their faith in the fund.

For equity funds, an extremely small AUM can sometimes lead to concentration risks. On the other hand, a large AUM for debt funds might offer stability during volatility. One may aim at striking a balance between the two.

Exit Load and Lock-in: Flexibility is what matters

Some funds discourage early exits by charging an exit load — usually for withdrawals before a set duration. Others, like ELSS funds for instance, come with a mandatory lock-in.

One must account for their lifestyle in order to compare mutual funds fairly and effectively. It’s useful to answer questions like:

• Do you want to have the freedom to withdraw from your fund anytime?
• Can you stay invested because your financial goal is for the long term anyway?

Any mismatch between your aspirations as an investor and the results can cause great frustration.

Fund Overview: What exactly is the fund trying to achieve?

Every fund comes with a stated objective, a category, a mandate and a style.

• Growth or value?
• Largecap or multicap?
• Domestic or global?

The fund manager’s approach — whether conservative, opportunistic or middle-of-the-road — shapes how your money behaves. Reading the fund overview doesn’t take more than a minute but rather tells you whether the fund’s philosophy sits comfortably with your own.

Risk & Ratings: Understanding fund temperament

Risk isn’t about fear, but rather about compatibility.

Check volatility, standard deviation, Sharpe ratio and drawdowns.

While the math behind these can get technical, the takeaway is simple:

Does the fund take wild swings or does it move steadily?

Third-party ratings aren’t verdicts. However, they do offer a useful sense of reliability. A well-rated fund generally offers consistent management, stable performance and responsible risk-taking.

Fund House (AMC): The culture behind the fund

A mutual fund AMC is like the engine room — you may not see it, but everything depends on how it operates.

Financial planners say one should always look for qualities like:

• Strong governance
• Transparent communication
• Experienced fund managers
• Long-term track record
• A good fund focuses on processes, not noise

Other things investors shouldn’t overlook
At some point, you will also encounter the choice between a regular vs direct mutual fund plan. It’s not a tiny detail — the difference lies in commissions and long-term compounding. Typically, direct mutual fund plans usually have lower expenses compared to regular plans — which offer advisory support through intermediaries.

Pick what suits your comfort and confidence level, but don’t ignore the distinction.

Summing it up

Comparing mutual funds doesn’t have to feel like decoding a financial maze. Once you know what to look for — returns, costs, size, flexibility, risk, philosophy and the fund house’s credibility — the picture becomes clearer.

And the best part? You don’t have to become an expert to make a smart choice. You just need the right lens.

The goal isn’t to chase the best fund in the market.

It’s to find the fund that quietly helps you reach where you want to go.

Disclaimer: This article is from the Brand Desk. User discretion is advised.