How To Rank Mutual Funds Using Key Performance Indicators

When choosing the best mutual funds, it’s essential to evaluate them based on objective criteria that reflect both their performance and reliability. This guide explains how to rank mutual funds using 1-year return, expense ratio, and total AUM (Assets Under Management), applicable to any investment platform.

Step 1: Understand the Variables

1. 1-Year Return: Measures the fund’s performance over the last year. Higher values indicate better short-term performance.
2. Expense Ratio: Represents the percentage of assets deducted annually to cover fund management costs. Lower is better.
3. Total AUM: Shows the total amount of money managed by the fund. Higher values signify investor trust and fund stability.

Step 2: Collect Data

Most platforms, like Bibit, Morningstar, or Yahoo Finance, allow you to view detailed metrics for mutual funds. Use the search or filter options to display these three variables for the funds you are interested in.

Step 3: Rank Each Variable

• 1-Year Return: Sort funds in descending order (highest to lowest return).
• Expense Ratio: Sort funds in ascending order (lowest to highest cost).
• Total AUM: Sort funds in descending order (highest to lowest).

Step 4: Assign Scores

Rank the funds within each category. For example:

• Rank 1: Best-performing fund in that variable.
• Rank 2: Second-best, and so on.

Step 5: Calculate Total Scores

Sum the ranks across the three variables for each fund. A lower total score indicates a better overall rank.

Example Table

Fund Name	1-Year Return Rank	Expense Ratio Rank	Total AUM Rank	Total Score
Fund A	1	2	1	4
Fund B	2	1	3	6
Fund C	3	3	2	8

In this example, Fund A is ranked the highest.

Step 6: Finalize the Rankings

Use the total scores to rank the mutual funds from best to worst. If two funds have the same score, prioritize based on your personal preferences:

• Expense Ratio for cost-conscious investors.
• 1-Year Return for performance-focused investors.

Automating the Process

Using Excel or Google Sheets

1. Input data for all funds in columns (1-Year Return, Expense Ratio, Total AUM).
2. Use the RANK function to assign ranks for each variable.
   • For example, =RANK(B2, B$2:B$10, 0) ranks 1-Year Returns in descending order.
3. Create a “Total Score” column to sum ranks for each fund.
4. Sort the funds by Total Score.

Using Python

You can use libraries like Pandas to automate the ranking:

import pandas as pd

# Data input
data = {
    "Fund Name": ["Fund A", "Fund B", "Fund C"],
    "1-Year Return": [12.5, 10.8, 9.6],
    "Expense Ratio": [0.8, 0.5, 0.7],
    "Total AUM": [1500, 1200, 1300]
}

df = pd.DataFrame(data)

# Ranking
df['1-Year Return Rank'] = df['1-Year Return'].rank(ascending=False)
df['Expense Ratio Rank'] = df['Expense Ratio'].rank(ascending=True)
df['Total AUM Rank'] = df['Total AUM'].rank(ascending=False)

# Total Score
df['Total Score'] = df[['1-Year Return Rank', 'Expense Ratio Rank', 'Total AUM Rank']].sum(axis=1)

# Final Ranking
df = df.sort_values('Total Score')
print(df)

Conclusion

By systematically evaluating mutual funds based on these metrics, you can ensure that your investments align with your financial goals and risk tolerance. This method is platform-agnostic, making it suitable for any investment platform that provides these variables.