How do you usually decide which mutual fund to invest in? A quick Google search for “best mutual funds to invest in 2026” and you are met with a sea full of ratings, numerous lists that often highlight funds with star ratings based on their past performance, sometimes adjusted for risk. These lists mostly favour funds that have done well in the past.
We have all heard the SEBI disclaimer at the end of every mutual fund advertisement: “Past performance is no guarantee of future results.” This statement serves as a reminder from the Securities and Exchange Board of India (SEBI) about the limits of relying on past performance when making decisions. Yet, many evaluation models in the industry still focus on 3-year or 5-year returns, and we are drawn to them, even though we know they don’t predict future results like we are trying to drive forward while only looking in the rearview mirror.
To tackle this problem, we created the 1 Finance Mutual Fund Scoring and Ranking Model, which assesses mutual funds beyond just their past performance. Our model considers several key factors, including key ratios, recovery from market downturns (for equity mutual funds), drawdown, tracking error (for index funds), fund managers’ experience, and overall fund performance. Because our evaluation does not rely solely on past returns, you won’t see our funds’ scores and ranks change every quarter like others’.
Since the model is built on both quantitative and fundamental qualitative factors, not past returns, our fund scores and positions don’t swing wildly. We still update them quarterly.
When you invest for long-term goals, you need a compass that doesn’t keep spinning. The 1 Finance model gives you that steady guide by looking deeply at a fund’s overall health.
In this article, we discuss the unique features of the 1 Finance Scoring and Ranking model and how to use it.
Avoid choosing funds based on a single attractive parameter
Most mutual fund screeners on the market list funds based on past returns, whether it’s over one week or 10 years, focusing on only one parameter. For instance, if you choose the best large-cap funds based on past returns showing 17.5% over 10 years, this number may seem appealing, and you might feel ready to invest. But hold on before you click the “buy” button. Do you know how much risk the fund took to achieve that high return?
The 1 Finance Mutual Fund Scoring and Ranking Model looks deeper than just the returns. We analyse the Sharpe Ratio to see how much extra return an investor earned for taking on additional risk. We also use the Sortino Ratio to measure downside risk, the Treynor Ratio to understand systematic risk, and Jensen’s Alpha to evaluate an investment’s actual return compared to its expected return based on market risk. Additionally, we assess fund managers by evaluating their experience and past performance in managing prior funds.
We also consider critical factors such as recovery after market crashes, drawdowns.
Evaluate both the fund and the fund manager’s quality
Our model also reveals how your fund is managed by following the fund managers’ decisions: what they buy, how they assemble their portfolios, and how they react to market volatility. Two funds with similar past returns are equally good, but one fund may reach those numbers through a solid strategy that can withstand market fluctuations, while the other might rely on risky bets that could lead to quick losses in the future.
Our model tackles this issue in two ways. First, it evaluates the fund manager’s own history: years of experience, consistency of performance, and the quality of their decisions. Second, it assesses the quality of those decisions regarding the fund’s investments, including the number of stock holdings and how well the fund manager’s bets are yielding. We also examine portfolio valuation metrics, such as P/E and P/B ratios, to determine whether the portfolio is well-constructed in terms of valuation or overly reliant on risky investments.
Our model’s scoring representation
We don’t use star ratings or a standalone ranking system, as those can be misleading and oversimplify fund quality. Instead, we use a more structured approach: each fund is scored out of 100. A score of 75+ indicates a high-quality fund that is suitable to hold over the long term (rather than chasing the current No. 1 ranked fund). A score of 50–75 indicates medium quality, and anything below 50 is considered low quality. These scores are the aggregate outcome of all parameters we study.
Create a better mutual fund portfolio
With the 1 Finance Mutual Fund Scoring and Ranking Model, you have a clear starting point for building your portfolio. We categorise mutual funds as equity, debt, hybrid, tax-saving, or ETFs, eliminating confusion caused by similar-sounding names. We clearly label each fund type, whether large, mid, small-cap, flexi-cap, or index fund, at the top to help you understand how diversified your portfolio will be, so you don’t inadvertently buy funds that hold the same style of investing. Our Mutual Fund Overlap Calculator will help you find the overlap.
On each mutual fund’s detailed page, you’ll find important information presented in easy-to-read bullet points. There’s no overload of jargon or data. Our rankings are straightforward, making it easy for anyone from a beginner to an experienced investor to understand.
A forward-looking framework for long-term goals
If your investments are meant to fund future goals, they must be fundamentally reliable to achieve those results. Hence, our scoring and ranking model doesn’t prioritize the fund’s past performance; its performance is usually shaped by conditions that may never repeat, like liquidity cycles, specific sector booms, interest rate regimes, etc. Your future goals, however, aren’t tied to those past conditions, but depend on what your investments can deliver from today forward. Hence, the fund’s performance strength relies on its foundation.
We focus on fundamental analysis, like examining the strength of underlying businesses, portfolio construction, risk controls, etc. And determine whether performance has a solid foundation or just amplified by temporary conditions. This evaluation increases the probability that your investments remain aligned with your future goals.
How to use 1 Finance Mutual Fund Scoring and Ranking model
To use our model,
- Go to our website.
- Navigate to the Scoring & Ranking section.
- Inside that vertical, select Mutual Funds. You will then see different fund categories.
- Choose the category relevant to you, and the model will display funds ranked as per our fundamental scoring framework.
- You can also easily compare mutual funds within the same category, and identify those built for long-term performance.
Use the 1 Finance Mutual Fund Scoring and Ranking Model as the starting point
Remember, the 1 Finance Mutual Fund Scoring and Ranking Model is just a starting point for your investment journey. It can guide you if you’re beginning your investment journey, but don’t rely on it exclusively. Investments are typically made to meet specific goals, such as saving for a marriage, purchasing a home, travelling, or funding a child’s education. For example, if you want a certain amount of money in ten years to meet a goal, you need to consider inflation and where to invest to achieve that dollar amount. All these decisions require careful data analysis and calculations that shouldn’t be overlooked. This is where financial planning becomes essential.
A Qualified Financial Advisor (QFA) can help you understand your financial situation, needs, and goals, and create a plan with the right asset allocation strategy that doesn’t rely on commissions. Be aware that financial planning should encompass your entire financial situation, not just investment planning.
Get a personalized strategy built around you
Consult Qualified Financial Advisors (QFAs) today to get your financial plan
Your first financial plan is free
That’s where 1 Finance can assist you with comprehensive financial planning, from income and expense management to insurance, tax strategies, loan advice, real estate guidance, retirement planning, and even estate planning, all under one roof, allowing you peace of mind as we manage your finances.
It’s important to note that this mutual fund scoring and ranking model does not replace personalised financial advice and does not make allocation decisions for you. This responsibility belongs to QFA. A good advisor will assess your cash inflows and outflows, consider your expenses, family obligations, and risk tolerance, and then design a tailored plan that reflects your actual life. They will guide you on where to invest, in which order, and how to adjust your plan when circumstances change.
