Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 48 I Expert

Alpha and Beta

Why Alpha and Beta are important when investing in mutual funds

When calculating risk and returns mutual funds, alpha and beta are the two most commonly used measurements to understand how successfully a portfolio has performed, when compared to its peers. Mutual fund investments do come with various types of risks.

Though there is a fund manager to help you earn profits, he cannot always anticipate risks due to global macroeconomic or political conditions which may butt in a fund's returns. There are different ways or statistical measures to measure risk and returns but alpha and beta are more commonly used.

Both alpha and beta help you understand how effective investments in the markets are as they help to track how profitable or unprofitable a fund has been.

Alpha is an acute barometer which indicates how much returns a fund has given compared to its benchmark. If the alpha shows a negative figure it means the scheme has underperformed the benchmark.

Let’s understand through an example. If a large-cap scheme delivers 10% and its benchmark delivers returns of 5%. Here the scheme delivered 5% higher returns than the benchmark thus the excess return is the ?alpha? which the scheme generated over a period of time. Now let’s say another scheme delivers 5% whereas the benchmark delivers 15%. In this situation, it is clear the scheme failed to keep pace with the benchmark’s returns. A situation like this leads to various speculation and serious possibilities where the market could be in a bear phase or may have reacted due to external macroeconomic situations thereby making investible ideas challenging. Sometimes fingers are raised on the fund manager’s ability to deliver returns or boost profits. Beta visibly indicates the fluctuation and sensitivity of a scheme to market movements or the benchmark. It clearly defines the extreme ups and downs in prices which isn’t something an alpha can measure. So beta defines how closely a fund is related to the index and a beta accuracy leads to an accurate alpha.