InvestorQ : I prefer to buy mutual funds with the higher returns. Is that the right strategy to adopt while buying mutual funds?
simran Kaur made post

I prefer to buy mutual funds with the higher returns. Is that the right strategy to adopt while buying mutual funds?

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shrinidhi Rajan answered.
3 years ago
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This is again a dangerous line of thinking. A fund may be giving a higher return purely because it is taking higher risk. A fund that generates 15% return with 20% volatility is surely better than a fund that generates 20% return with 60% volatility. Greater the volatility, greater the chances of the fund earning negative returns. Don’t judge a fund by returns. There is an important risk aspect to it. Always look at returns adjusted for risk. That is a better benchmark to measure and compare funds. That is why you must also consider other measures of returns like Sharpe and Treynor which are also risk adjusted returns measures.

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