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Equity Mutual Funds – How to figure out risk

by | Apr 30, 2018 | Finance, Mutual Funds, Risk

Whenever we invest in anything, the most important factor to take into account is risk. Most people ignore it totally.                                                                                               

How to figure out how risky a Mutual Fund is?                

Let us take a fund, say HDFC Top 200 Fund. Type into Google search “HDFC Top 200 Fund snapshot”

The page you will reach on is this:

When the page opens, scroll down till you reach this figure.

The risk increases right to left and top to bottom.

The Capitalisation part has been discussed in a previous post.

Now for the ‘Investment Style’ part. The ‘Blend’ is a combination of Growth and Value styles.

Value style of investing: This means figuring out the intrinsic value of a stock and buying it only if it available cheap. Finding out the value of any company is extremely difficult. It involves research into the company’s assets, liabilities, etc. Great investors like Warren Buffeet follow this system and take years to arrive at a stock that they would like to own because it is a value buy. It makes sense that if you buy something cheap, eventually it will make a good investment. But the effort put in is too much and you will rarely find a fund that is classified as a ‘value’ fund. Take the example of ICICI Pru Value Discovery Fund – even though it has ‘value’ in its name, it is classified as a ‘growth’ fund.

Growth style of investing: In my opinion, this is the ‘astrology’ type of prediction. One looks at the birth date and time and predicts the person’s entire life. Similarly, one looks at various parameters and predicts what the stock will do. Almost everyone predicts using this style. Not much effort is needed. Some people predict based on the volume of stocks traded and the price. Others call their method ‘technical analysis’ and draw various types of graphs and predict the future of the stock based on that. The fact remains that there is very little effort (as compared to value style of investing) and is this remains the most popular style. Check out all those ‘wise’ men who come on the TV business channels who keep recommending stocks on a daily basis. Not one of them will talk about the value of the stock but most of them will say some rubbish like “The stock has performed a double bottom and is expected to go up from here ……” And the next day, the same person will come and give a reason why that particular stock didn’t go up!

So a Large Cap – Value Fund would be the safest of Equity Funds whereas the Small Cap – Growth Fund would be the most risky.

Niranjan Bangera

N4 Investments


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Written By: niranjan

Financially Stupid Niranjan


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