Selection of Mutual Fund Scheme offered by Different AMCs or within the Scheme Category

Scheme category is a classification defined by SEBI that groups funds based on their investment objective, asset allocation and risk profile. Examples include Equity‑oriented, Debt‑oriented, Hybrid, Solution‑oriented and ELSS. The category determines the permissible asset mix and the benchmark against which performance is measured.

For exam purposes, you must be able to map a fund’s stated objective to its category. A fund that invests 80% or more in equities belongs to the Equity‑oriented category, whereas a fund with 65%–85% debt exposure falls under Debt‑oriented. Hybrid funds split assets between equity and debt, typically 40:60 or 60:40, and are further sub‑categorized as Aggressive Hybrid or Conservative Hybrid.

Why this matters: The category sets the baseline expectations for risk, return and liquidity. In the exam, a question may present two schemes from different AMCs but the same category and ask you to choose the better one based on quantitative parameters.

• Remember: Category is not the same as fund type (e.g., Growth vs Dividend options).
• Always verify the category in the scheme’s fact sheet before proceeding with any comparison.

When comparing schemes, focus on quantitative parameters that directly affect investor outcomes. The most frequently tested parameters are:

1. Expense Ratio – annual cost expressed as a percentage of average net assets. A lower expense ratio means higher net returns, all else equal.

2. Historical Returns – typically 1‑year, 3‑year and 5‑year annualised returns. Look for consistency and outperformance relative to the category benchmark.

3. Risk Measures – standard deviation, beta and Sharpe ratio (where available). These indicate volatility and risk‑adjusted performance.

4. Portfolio Turnover – high turnover can increase transaction costs and tax drag. Turnover is expressed as a percentage of the fund’s assets per year.

Exam relevance: A question may give expense ratios and 3‑year returns for three schemes and ask which scheme a risk‑averse client should choose. Knowing how to weigh each parameter is crucial.

Even within the same category, schemes offered by different AMCs can vary widely because of management style, cost structure and asset selection philosophy. For example, two Equity‑oriented large‑cap funds may have similar benchmark exposure but differ in expense ratio, turnover and past performance.

Distributors should obtain the latest fact sheets from each AMC, verify the expense ratio, check the fund’s tracking error against its benchmark, and note any special features such as tax‑loss harvesting or ESG integration.

From an exam perspective, a common question format presents three schemes (AMC A, AMC B, AMC C) with identical category and asks you to rank them based on net return after adjusting for expense ratio. Remember to subtract the expense ratio from the reported gross return to obtain the net return.

Historical returns alone do not tell the whole story. A fund that delivers 15% CAGR but with a standard deviation of 25% is riskier than a fund delivering 12% CAGR with a 12% standard deviation. The Sharpe ratio (excess return per unit of risk) helps compare risk‑adjusted performance, though the exact formula is rarely required for the exam.

Consistency of returns is another key indicator. A fund that has delivered positive returns in each of the last three years is generally more reliable than one that shows a single high‑return year followed by a loss.

Exam relevance: Questions may ask you to identify the scheme with the best risk‑adjusted return or the most consistent performance. Look for lower volatility and steady positive returns within the same category.

Step 1: Identify the client’s investment objective, risk tolerance and time horizon. Map these to an appropriate scheme category (e.g., Equity‑oriented for long‑term growth).

Step 2: Shortlist schemes within that category from multiple AMCs. Use SEBI’s Mutual Fund Database or the AMCs’ fact sheets to collect the latest expense ratios, turnover, 3‑year CAGR and risk metrics.

Step 3: Apply a weighted scoring model – for example, 40% weight to net return, 30% to expense ratio, 20% to risk (standard deviation) and 10% to turnover. Calculate a composite score for each scheme.

Step 4: Prepare a recommendation note that includes a side‑by‑side comparison table, the net return after expense deduction, and a clear disclosure of all assumptions.

Step 5: Obtain client’s informed consent and retain records as per SEBI (Investment Advisers) Regulations, 2013.

1. Chasing Recent High Returns – Ignoring the consistency of returns and the underlying risk can lead to recommending a fund that may underperform later.

2. Overlooking Expense Ratio – A high‑cost fund can erode returns, especially over long horizons. Many candidates forget to convert the expense ratio into a deduction from gross returns.

3. Ignoring Category Benchmarks – Comparing a fund’s return to an unrelated benchmark (e.g., comparing an Equity‑oriented fund to a Debt benchmark) leads to misleading conclusions.

4. Neglecting Turnover Impact – High turnover can increase transaction costs and tax liabilities, which are not reflected in the headline return figures.

5. Misreading Fact Sheet Numbers – Some fact sheets present expense ratio on a “gross” basis; always verify whether it is net of transaction costs.

SEBI’s Mutual Fund Database provides a consolidated view of all registered schemes, their categories, expense ratios and performance metrics. Use this as the primary source for exam data.

AMC websites and monthly fact sheets give the most recent turnover and portfolio composition details. Mobile apps like CAMS KRA or Karvy KRA also allow quick retrieval of scheme-level data.

Financial news portals (Moneycontrol, Economic Times) often publish comparative tables of top‑performing schemes within a category. However, cross‑verify numbers with the official fact sheet before using them in a recommendation.