Can these mutual fund ratios help you pick the right scheme?

Subscribe to enjoy similar stories. When evaluating mutual funds, most investors focus on returns, but there’s more to a scheme than just performance numbers. A closer look at key quantitative measures can reveal how a fund is managed, the level of risk it takes, and its consistency across market cycles.

What are these measures and what do they say about the scheme? The portfolio turnover ratio is the percentage of investments a fund manager replaces in a mutual fund scheme over a year. A low turnover ratio might indicate that the fund manager follows a 'buy and hold' strategy and invests for the long-term. Also read: Mutual fund industry unfazed as rattled investors rush to pause investments A high turnover ratio may not necessarily be a bad thing, as some fund managers prefer to take profits from their investments at regular intervals, which can show up as higher turnover ratio.

However, a high turnover ratio with poor returns can be worrying. It might mean that the fund manager is unsure about his or her investment strategy. The Sharpe ratio measures how much excess return a mutual fund generates for each unit of risk taken.

By comparing the fund’s returns to risk-free assets like short-term government bonds, it helps investors assess whether higher returns come from smart investment choices or simply from taking on more risk. “A scheme may have a high sharpe ratio due to outperformance. However, some schemes with high sharpe ratios may be taking higher risks, especially in certain market conditions," said Ravi Kumar TV, co-founder of Gaining Ground Investment Services.