How to Pick a Mutual Fund Like a Data Analyst

Stop Guessing: How to Pick a Mutual Fund Like a Data Analyst

Don't just look at the "Star Rating." Here is how we analyze the numbers behind the scenes.

"Bhai, I have 5,000 rupees extra this month. Which fund should I buy? Tell me the best one."

Since I started working at Morningstar (the company literally famous for rating Mutual Funds), this is the #1 question my friends ask me.

They expect a hot tip. But as a Data Analyst, I don't follow hot tips. I follow the data. Investing based on "Past 1 Year Returns" is like driving a car while looking only at the rearview mirror—it's dangerous.

Here are the 3 Hidden Metrics I actually check before investing my own salary.

1. Expense Ratio (The Silent Killer)

This is the fee the fund house charges you to manage your money. It sounds small (1% or 2%), but over 20 years, that 1% difference can cost you lakhs.

Plan Type	Typical Expense Ratio	My Verdict
Regular Plan	1.5% - 2.5%	❌ Avoid (Commission included)
Direct Plan	0.5% - 1.0%	✅ Buy (No commission)

Rule: Always look for the "Direct" plan. The data is clear: lower costs = higher in-hand returns.

2. The "Alpha" & "Beta" Test

You don't need a finance degree to understand this. You just need to know what to look for on Moneycontrol or ValueResearch.

Alpha (α) The "Skill" Score

What it is: How much extra return the fund manager generated compared to the benchmark.

The Data Check: Look for a Positive Alpha.

Alpha > 0: Manager beat the market. (Good)
Alpha < 0: Manager underperformed. (Bad)

Beta (β) The "Mood Swing" Score

What it is: How volatile (risky) the fund is compared to the market.

The Data Check: Comparison to 1.

Beta > 1: High Risk (High volatility)
Beta < 1: Low Risk (Stable)

My Strategy: I look for a fund with High Alpha (Good returns) and Low Beta (Low risk). That is the "Sweet Spot."

3. Rolling Returns vs. Point-to-Point

Most apps show you "3 Year Returns" or "5 Year Returns." As a Data Analyst, I know this data is biased. It depends heavily on the start and end dates.

Instead, I check Rolling Returns. This calculates returns for every possible 3-year period in the fund's history.

If a fund has delivered >12% returns in 90% of its rolling periods, that is a consistent performer. If it only did well in 2020 and 2021, it's just lucky.

Summary: The Analyst's Checklist

Plan: Direct Growth (Not Regular, Not Dividend).
Cost: Expense Ratio should be lower than category average.
Skill: Positive Alpha.
Risk: Beta should align with your risk appetite.

Next time you want to invest, don't just ask for a name. Open the data, check these three numbers, and decide for yourself. That's how we do it at Morningstar.

⚠️ Disclaimer: I am a Data Analyst, not a SEBI Registered Investment Advisor. This post is for educational purposes only. Please consult a financial advisor before investing your money.