Mutual Fund Jargon

There is a lot more literature on investing in mutual funds in India due to better performing stock markets than a decade ago. The mutual fund houses also have a vested interest in having potential investors better informed. Here is a compilation of the useful content I have found on various sites -

Large-cap mutual funds are those which invest in large sized companies, which usually are market leaders in their industry. Some commonly used names of large-cap funds are top- 50, top-100, top-200, blue-chip and focused large-cap.

Another characteristic of a large-cap stock or fund is that they usually demonstrate better resilience in times of heightened stock market volatility. Furthermore, these companies usually have a dividend paying track record though this cannot be guaranteed always. 

The term mid-cap is an abbreviation for 'middle capitalisation' stock. 

The 'capitalisation' indicates the size of the company in terms of its market value. The market value or capitalisation of a company is calculated by multiplying the number of outstanding shares of a company with the stock price of the company.

Mid-cap stocks tend to have a smaller market capitalisation when compared to large cap stocks and are generally priced low because investors are yet to discover their potential.

Risk-adjusted measures, such as Alpha, Beta and Standard Deviation are easiest to decipher and can be referred before taking an investment decision.

Standard deviation is the most commonly used measure to gauge volatility in returns. It essentially measures the fluctuation in returns of a financial product relative to its average return. Lower the deviation, the less risky would be the investment.

Beta is used to gauge the excess risk over an index. It gauges the tendency of a fund's returns to respond to the market fluctuations. A beta of 1 is considered to have the same risk as the overall market, more than 1 is considered more risky while a beta of less than 1 is less risky.

Alpha on the other hand measures the investment manager's ability to generate additional returns over the risk-adjusted returns delivered by the corresponding benchmark index. Alpha indicates how much value the manager has added through his stock selection ability. A high value for alpha implies that the fund has performed better than what was expected. 

Normally, high risk is associated with high returns, but it would be better to find funds that generate higher returns by taking lower risk. Sharpe Ratio measures the risk-reward ratio as it indicates whether higher returns come with higher or lower risk. Greater the ratio, better is the risk-adjusted performance.

Returns from Nifty & Sensex may not be co-related

Some of Templeton Maxims:

* Aggressively monitor your investments. Remember, no investment is forever
* Remain flexible and open-minded about types of investment
* Don’t be fearful or negative too often. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

MF Rating & Analysis:
* Mint 50
* Morning Star India Gold & 5-Star rated MFs
* Value Research