People often come to me with two fund names written on a piece of paper. Both are in the same category. Both have good ratings somewhere online. Both had a decent few years. "Which one should I pick?" It's a reasonable question, and I'll give you a simple way to answer it. But I'll also tell you something that surprises people: when both funds are genuinely decent, the choice matters much less than what you do after you pick.
First, are they really the same type?
Before comparing, check that both funds are in the same category. A flexi cap fund and a large cap fund aren't the same thing, even if their names sound similar. Comparing them is like comparing a car and a bike.
It sounds obvious, but it is the most common comparison mistake I see. The category is printed on the fact sheet. Our page on SEBI fund categories explains the groups.
Compare against the benchmark, not each other
Look at how each fund did against its own benchmark over five years or more, not just which one did better last year. One year can be luck. Five years is a pattern.
A fund that beat its benchmark steadily is often a better sign than one that had one brilliant year. Our page on the benchmark explains why.
Look at consistency
Rolling returns show how a fund did across many different periods. A fund that was decent in most periods is usually easier to live with than one that swung between great and terrible.
Our page on rolling returns explains how to read them.
Ask what job the fund will do
Before comparing numbers, be clear about why you want the fund. Is it your main long-term holding, or a smaller add-on? A steady core and a riskier extra need different qualities.
The right fund for one job may be wrong for another.
Check the costs
If two funds are similar in every other way, the cheaper one has a quiet advantage that compounds over the years. Compare the expense ratios of the same plan type, direct with direct or regular with regular.
Our page on expense ratio explains how costs work.
Look at how bumpy the ride was
Two funds can reach the same place by very different routes. One may have fallen much more in bad years. The risk numbers on the fact sheet, like standard deviation and the Sharpe ratio, show this.
Our page on Sharpe ratio and standard deviation explains them simply. Pick the one whose ride you could actually sit through.
Check the fund manager
Has the same manager been running the fund for several years? A long record under the current manager means the past numbers tell you more. A recent change means the past may not reflect the future approach.
Our page on the fund manager explains why this matters.
Check overlap with what you already hold
If you already own a fund, the "better" new one might just repeat the same companies. Sometimes the right answer is the fund that adds something different, not the one with the highest return.
Our page on portfolio overlap shows how to check.
Size can matter, a little
A very small fund may be newer or less proven. A very large fund in mid or small caps can find it harder to move in and out of stocks. For most large cap and flexi cap funds, size isn't a big issue.
Our page on fund size and AUM explains when it matters.
Check the portfolio, not just the name
Open the fact sheets side by side and look at the top ten holdings. Sometimes two funds that seem different hold almost the same companies. Sometimes two funds with similar names hold very different ones.
The holdings tell you what you're actually buying. The name only tells you what the fund house wants you to think. Our page on the fact sheet shows where to find them.
Direct or regular, compare like with like
Every fund has a direct plan and a regular plan with different costs and different returns. If you compare one fund's direct plan with another fund's regular plan, the comparison is unfair.
Always compare the same plan type. Our page on direct versus regular plans explains the difference.
What I'd ignore
Ignore the noise. Star ratings on their own. Last year's return on its own. A friend saying one is "the best". A fund that's been in the news. None of these tell you much about which fund will serve you better over the next ten years.
Look at how they behaved in a bad year
Find a year when the market fell and check how each fund did. Did one fall much more than the other? Did one recover faster?
That tells you a lot about how each fund might feel to hold the next time things get rough. Pick the one you'd be less likely to panic out of. Honestly, that matters more than a small difference in returns.
The honest truth
If both funds pass these checks, the difference between them over the long run will probably be smaller than the difference your own behaviour makes.
I've seen people agonise for weeks over two decent funds and then, a year later, stop their SIP during the first market fall, which cost them far more than picking the slightly weaker fund ever could have.
Staying invested through falls, raising your SIP every year, and not switching every time the other fund has a good quarter will matter far more. Our page on common mutual fund mistakes explains the habits that cost people most.
Once you pick, stick with it
The worst outcome isn't picking the slightly weaker fund. It's switching back and forth every year, chasing whichever one did better recently.
Give your choice at least three to five years, review it once a year against its benchmark, and switch only for a real reason. Our page on how to review your portfolio explains a simple yearly routine.
Don't split just to avoid deciding
I understand the temptation. Some people invest half in each to avoid choosing. If the two funds are very similar, that just adds paperwork without real benefit. Pick one, and spend the energy on keeping your SIP running instead.
Our page on how many funds to hold explains why fewer is usually better.
What if they look identical?
Sometimes, after all the checks, two funds really do look almost the same. That's fine. Pick the one with the lower cost or the longer-serving manager, and move on.
Spending weeks deciding between two good options delays your investing, and those weeks matter more than the choice.
A simple checklist
- Same category? Good.
- Beat the benchmark over five years or more?
- Consistent across rolling periods?
- Reasonable costs?
- A ride you could sit through?
- Stable fund manager?
- Adds something to what you already hold?
Tick most of these and either fund will probably serve you well. If you'd like a second opinion on two funds you're comparing, I'm happy to look. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014. Get in touch.
