Mutual Fund Performance
Mutual fund investing necessitates a certain level of financial literacy and market expertise. Investors have two options here. Either buy a standard fund from a broker or do extensive research to invest directly. However, an investor’s obligations do not end there. It would be beneficial if you also kept track of the mutual fund’s performance in the market.
How to Assess the Mutual Funds Performance
Define your investment objectives
What exactly is the goal of my investment? Your mutual fund selections should be based on the answer to this question. You can invest in a debt fund, for example, if you want a steady income with capital protection. Equities, on the other hand, will suit your needs if you have a higher risk appetite and want to build your wealth. As a result, it is critical to first define your financial goal before deciding on your investment. This is also important in fund evaluation.
To compare, make a list of a few peer funds
It’s difficult to judge a mutual fund on its own. As a result, you should keep track of a small list of comparable funds and compare them on a regular basis. Free mutual fund screener tools are available from a variety of FinTech companies and third-party websites.
Check out the previous Performance Data
Every mutual fund handbook now includes a disclaimer that states that past performance is no guarantee of future results. This information, on the other hand, can be used to see how the fund has performed over time. Consistency can also reveal the fund manager’s abilities. In short, finding a fund with lower risks but higher returns will be easier.
Fund’s Fee Structure
You pay a mutual fund company for its services and expertise. Some funds necessitate careful management and prompt decisions about whether to buy, sell, or hold an asset. Keep in mind that a fund with a higher fee is always better. Before making a decision, make sure to look at all of the options.
Returns on Investment That Have Been Risk-Adjusted
Every mutual fund anticipates certain market and industry risks. We call risk-adjusted returns when we fund strategies in such a way that they make more returns when compared to expected risks.
Mutual Fund Performance in Relation to the Index
Nifty, BSE Sensex, and BSE 200 indexes serve as benchmarks, and all fund performance is measured against them. It can be instructive to compare different timelines to the benchmark as well as peers. During a market downturn, a well-managed fund will not fall too far.
Why Should You Keep Track of Your Mutual Fund Performance?
You may have seen the caveat that a fund’s previous performance does not guarantee future results. It indicates you can’t count on a certain rate of return on your investment. As a result, when evaluating a mutual fund, you must go beyond previous years’ returns.
First and foremost, you should keep track of your investments so that you can make informed decisions that will result in higher profits. You’re aware that the stock market fluctuates in response to changes in the general economy. The asset allocation of the portfolio is thrown off by such a change.
A market rally, for example, might transform a 50:50 equity:debt allocation to a 60:40 ratio. It may raise the fund’s risk profile beyond what you require. Fund evaluation also allows you to compare your investment’s performance to that of other similar funds.
An evaluation may also be triggered by a change in fund manager or fundamental characteristics of your fund. As a result, a review and rebalancing may be necessary to maintain the portfolio’s risk profile.
How Often Should You Evaluate Your Mutual Fund’s Performance?
The stock market is prone to swings. That does not, however, imply that you must evaluate the fund’s performance on a daily basis. Depending on the duration of the investment, you should evaluate your fund every six months to a year. A shorter period of evaluation does not provide an accurate picture of the performance of your investments. If all of this is too much for you, you can put your money into normal funds. They advise you to invest in funds based on your financial goals and risk profile as qualified intermediaries.
Which Mutual Funds are the Best to Invest in India?
Depending on your investment objectives and risk tolerance, you may want to consider selecting the finest mutual fund. Before investing in a mutual fund, you should look into the track record of the mutual fund house and the fund manager. However, you should only invest in a mutual fund if you are happy with the fund manager’s investment style.
Before investing in a mutual fund, make sure to verify the fee ratio. The best mutual funds might have a lower expense ratio. However, before investing in a mutual fund, you need to look at a few other key factors. You’ll notice that the best mutual funds have a lower portfolio turnover ratio. You should avoid mutual funds whose portfolios are churned frequently by the fund manager.
Depending on your investing horizon, you can choose the best mutual funds. You can only invest in equity funds if you have a three-year or longer investment horizon. You can invest in debt funds for a period of less than three years. Only invest in balanced or hybrid funds if you have a three- to five-year investing horizon.
You can compare mutual fund performance to a benchmark index to find the best mutual funds. You can compare the performance of a large-cap fund to the Nifty 50 index, for example. Compare the mutual fund’s performance to that of its peers, as well as the consistency of its performance. Over a period of five years or more, the best mutual funds have consistently outperformed peers and the benchmark index.
You must select the greatest mutual fund house with a significant amount of assets under management (AUM). If the fund company manages a big amount of assets, it may be able to withstand sudden redemption demand.
