5 Ways You Can Evaluate the Performance of Mutual Funds

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Mutual Funds are one of the best investment options today, but it carries market risks and volatility. This is why the performance of a mutual fund must be closely monitored. Below mentioned are some of the important tips that will help you review the performance of a fund.

  1. How Often You Must Review Mutual Fund Investments?

You may not have to review the performance of the fund all the time the markets are turbulent by a few 100 points. However, it will be wise to review the performance of mutual funds between 18 months and 24 months. And before you pick a type of mutual fund, do analyze its performance for the last 4 years to 5 years.

  1. Evaluate Performance

You should not only look at the returns from a fund but also consider its Net Asset Value (NAV). If the NAV of the fund drops lower than its benchmark, then you need to review this investment. One way to measure the fund’s performance is to compare the returns from it against the benchmark returns. Generally, the scheme must be able to outdo the benchmark consistently. Benchmark will be an index like BSE Sensex and vary from one fund to the other. You must be sure that the benchmark is accurate and returns are significantly more than the former.

  1. Compare Mutual Funds

When reviewing the performance of a fund- both underperformance and performance factors must be studied in-depth. Over a subsequent 2-3 quarters, you should observe for any improved performance. In case the funds underperform constantly over 3-4 quarters, then you must review your investment portfolio. One of the ways to do it is, to compare the funds to their peers.

For example, if the fund’s category is diversified equity, check its average return to get an estimate of how good is the performance of the fund. In case the fund underperforms its peers for about more than a year or two, then it is time to choose a new fund.

Read More: Points to Consider Before Investing in Debt Funds

  1. Reassess Risk-Adjusted Returns

Risk-adjusted returns are the way of finding out how much returns will the investment generate considering the risk level in the fund. High returns at low risk are always a preference for an investor. Thus, mutual fund schemes that have high risk-adjusted returns are a hot choice for investors.

  1. Don’t Fret About the Fund Portfolio

When measuring or evaluating mutual fund schemes, you do not have to look into any particular factors of a fund’s portfolio, as the same can be handled by the fund manager. Lastly, if you review the performance of funds too often, it can direct you to take some impulsive decisions. Do not allow a month’s or a quarterly dip in net asset value, to prompt you to exit the fund or stop SIP (systematic investment plan).

By considering the above-mentioned factors, now you can take an informed decision about investing in Mutual Funds.

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