Most investors have the tendency to look at past returns before investing in a mutual fund. Schemes with high returns in the past appear attractive. But past returns have no bearing on future returns. Worse, schemes that have done well in the past may perform poorly as well. That underlines the need for setting expectations right. Is there a better way to examine past returns?Gauging volatilityOne way to check your scheme’s worth is to measure how volatile it has been in the past. Gauge your scheme’s standard deviation (SD). SD is a statistical measure of volatility caused by a variety of factors that are in your fund manager’s control (stock or sector selection) or those beyond her ambit (macro economy). You will get to know your scheme’s SD from its factsheet every month or on from third party fund rating websites.Close In simple terms, a high standard deviation typically means that your fund is quite volatile. related news Why is the RBI buying dollars aggressively? Neither value nor growth, but only quality investing is best-suited for retail investors Hedge-fund billionaire: Investors have ‘once-in-a-lifetime opportunity’ due to coronavirus For example, assume that you have two schemes to choose from for investing… Read full this story
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