tracking mutual funds performance

How to Track Performance of Mutual funds

4 months ago

Mutual funds have emerged as a great option for investors to invest their money. It is a well-known fact that in mutual funds investors get the advantage of professional management of the fund by a fund manager. So many times it is seen that investors just invest their money and never track its performance thinking that it’s the duty of the fund manager to do generate returns. But, no that is not the case. You need to track the performance of mutual funds because the fund managers do not look at your personal portfolio. So, to achieve your financial goals it is important to track the performance.

In this article, we are going to discuss how you can track the performance of mutual fund investment.

But before knowing how to track the performance of a mutual fund, you need to select a fund that suits your goal and needs. So let’s take a brief view on how to select a fund?

Defining the goals

For any type of evaluation, you need to know what outcome you expect from the process. That’s what the case when you invest in a mutual fund. You should know for what reason or goal you are investing otherwise you would not be able to evaluate the performance of funds in true means. For example – if you want regular return without risking your capital then you can invest your money in debt mutual funds.

Compare with peer funds

Investing money is a major decision that you should take after reviewing all the considerations affecting your decision. There are a number of schemes that are available for you. You can select your fund after comparing it with other funds in the same category. With this, you will get the best fund that suits your financial goal.

Analyse the past performance of the fund

After shortlisting the funds, you need to check the past performance of the fund. How well it has performed in the past and the risk associated with it. With this, you will get the basic idea of the performance of funds all over the years. Although past performance does not guarantee future returns still you get the insights. When you are analyzing the fund you need to consider the fee structure of the fund because that ultimately affects your returns from the fund.

After selecting the funds, now let’s know how to track the performance of the mutual fund.

Fund fact sheet

A fund fact sheet is a document that gives an overview of the mutual fund to the investors who then analyze and evaluate the performance of the fund. The fact sheet is very helpful for potential investors as it provides information about different aspects of mutual funds such as fee structure, returns, and risk which plays a vital role in making the decision and tracking the performance. These sheets are generated monthly by mutual fund houses. So with the fund fact sheet, you can get insights into the fund.

Benchmark

Benchmark is an index that is used to measure the overall performance of the mutual fund. With the benchmark, you can assess how your mutual fund is performing. If your fund is outperforming the benchmark, this is the indication of the good performance of the fund. It is generally advised to compare your mutual fund’s performance with the benchmark.

Portfolio holdings

You need to keep out an eye on the changes made in the portfolio of the fund. You need to assure that assets held by the funds are according to the investment goal of the fund. You also need to consider the changes in management or ownership authorities of the fund because that may impact the performance of the fund.

Risk adjusted return

For analyzing the performance of the fund, looking at the return of the fund is not enough, you need to consider the risk involved in it. That can be known through the risk-adjusted return of the fund. These types of returns not only show the return of the fund but the degree of risk that must be accepted in order to achieve the return. Thus, the risk-adjusted returns can help you to know the performance of the fund.

Some of the important ratios that you can see for tracking the performance:

Alpha: Alpha is one of the important financial ratios to measure the performance of the fund.  It calculates the return on the investment that the fund has given in comparison to the market index.

Sharpe ratio: it is used to calculate the risk-adjusted performance of the fund. Basically, this ratio measures the measure of excess portfolio return over the risk-free rate relative to its standard deviation.

Expense ratio: this ratio shows all the fees and charges charged by the fund to manage your money. Thus, mutual funds with higher expense ratio should be avoided. It is important to consider this ratio as it impacts your overall return from the fund.

Hence, we can say that if we look at investment as a process then investing money is just a part of the process to complete it. We need to evaluate the performance and check the outcome (returns). Hope this article will help you to track the performance of mutual funds and achieving your financial goals.

Shivani Awasthi

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