When a new investor enters the world of mutual funds, their first focus goes to only one thing - 'returns'. Be it an advertisement on TV or the dashboard of a mobile app, everywhere it is written in big letters, "So and so fund gave a return of 40% in 1 year", "Money doubled in 3 years". Anyone can get attracted by seeing these figures and invest their hard-earned money in that fund. But, is it wise to invest just by looking at the past returns? The answer is - not.

This is just like buying a car just by looking at its top speed, but ignoring its mileage, safety features, and maintenance cost. Investing in mutual funds is not just a game of returns. If you ignore some important things, then the fund showing great returns may become the reason for your loss. Let us understand what things you should keep a close eye on apart from returns.

What to look at apart from returns? Here is your checklist

1. Your Goal and Risk Appetite

This is the first and most important step. The fund that is 'best' for someone else may not be right for you. Ask yourself these questions before investing:

Why are you investing? (Children's education, retirement, buying a car?)

When do you need this money? (After 3 years, 5 years, or 20 years?)

How much risk can you take? (Will you panic or stay calm if the market falls?)

If your goal is to buy a car in 3 years, then you cannot invest in a high-risk small-cap fund. Debt funds or hybrid funds may be better for this. On the other hand, equity funds may be a good option for retirement after 20 years.

2. Expense Ratio: The silent killer of your profits

Expense ratio is the annual fee that the asset management company (AMC) charges to manage your money. It is a small percentage of the value of your total investment. You may wonder what difference 1% or 1.5% will make, but in the long run, it has a huge impact on your returns.

Understand through calculations

Suppose you and your friend started a monthly SIP of ₹5,000 for 20 years in two different funds. Both funds give an annual return of 12%.

The expense ratio of your fund is 1%.

The expense ratio of your friend's fund is 2%.

After 20 years, your total investment will be ₹59.29 lakh. Whereas, your friend's total investment will be ₹50.31 lakh. A difference of just 1% made your friend lose almost Rs 9 lakh. Therefore, always prefer funds with a low expense ratio.

3. Fund Manager's Track Record
The fund manager is the captain of your investment ship. The future of your fund depends on his ability and experience. Before investing, see:

Who is the fund manager, and how much experience does he have?
How long has he been managing this fund?
How has his performance been during market downturns?
If a fund has recently changed its manager, there is no guarantee that its past great returns will continue in the future.

4. Fund's portfolio: Where is the money being invested?
It is very important to know in which companies' shares or bonds the fund is investing your money. Some funds are very diversified (80-100 stocks), while some are very concentrated (25-30 stocks). Highly concentrated funds have a higher risk because if a few stocks don't perform well, the entire fund is affected. Also, check whether the fund is investing as per its name (e.g., a large-cap fund should have most of its money in large-cap companies).

5. Risk ratio: Look at risk-adjusted returns, not just returns

Every fund has some risk associated with it, which is measured by ratios like Standard Deviation. It tells how volatile a fund can be from its average return. If two funds are giving equal returns, then the fund with lower standard deviation will be considered better because it is less volatile.

6. Exit Load: The price of exiting early

Exit load is the penalty that the AMC charges when you withdraw your money before a fixed period (usually 1 year). If you think you may need money in the short term, then choose a fund that either has no exit load or has a very low one.

Disclaimer: This content has been sourced and edited from NDTV India. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.