Article

Be Wise - Evaluate a fund’s performance before investing

07 Aug 2019 Nutan Gupta

While a lot of people invest in mutual funds, they are not aware of the performance of their funds. The main reason for this negligence is the lack of proper knowledge on how to evaluate a fund’s performance. Here are few simple guidelines/terms which will help you in determining the performance of the funds you have invested in or wish to invest in the future.

Risk Adjusted Returns

Risk adjusted return is a measure to identify how much return an investment will generate at the given level of risk associated with it. If you compare two investments which have given the same return over a given period of time, the investment which has the lowest risk will have a better risk-adjusted return.

Rolling Returns

Usually a fund’s short-term performance is influenced by the performance of some sectors. Hence, it is very important to go through the rolling returns of a fund, which are returns generated by the fund over a period of time.

Benchmark

Benchmark is comparing your fund’s performance with other similar entities - widely known as corresponding index. This helps you know how the overall asset class is performing against its benchmark index.

Volatility

Check the fund’s performance during the period when the market was volatile. This will help you know if the fund is able to sustain its position during a volatile market.

Quality of stocks in the portfolio

Before investing in a particular fund, check the quality of stocks in the fund’s portfolio. Good quality stocks will help you generate returns, thereby improving the overall performance of the fund and vice-versa.

Relative Performance with Peers

It is very important to check how the mutual fund is performing as compared to other funds in the same category. It is advisable to invest in a fund which gives better returns when compared to its peers.

Track record of the Fund Manager

Fund Manager is the person who makes investment decisions and selects the stocks in your portfolio. Hence, it is very important for a fund manager to have a good track record when it comes to stock selection. Always check the track record of the fund manager in terms of return generated by his funds before investing in a mutual fund.

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Beginner's Corner

Be Wise - Evaluate a fund’s performance before investing

07 Aug 2019 Nutan Gupta

While a lot of people invest in mutual funds, they are not aware of the performance of their funds. The main reason for this negligence is the lack of proper knowledge on how to evaluate a fund’s performance. Here are few simple guidelines/terms which will help you in determining the performance of the funds you have invested in or wish to invest in the future.

Risk Adjusted Returns

Risk adjusted return is a measure to identify how much return an investment will generate at the given level of risk associated with it. If you compare two investments which have given the same return over a given period of time, the investment which has the lowest risk will have a better risk-adjusted return.

Rolling Returns

Usually a fund’s short-term performance is influenced by the performance of some sectors. Hence, it is very important to go through the rolling returns of a fund, which are returns generated by the fund over a period of time.

Benchmark

Benchmark is comparing your fund’s performance with other similar entities - widely known as corresponding index. This helps you know how the overall asset class is performing against its benchmark index.

Volatility

Check the fund’s performance during the period when the market was volatile. This will help you know if the fund is able to sustain its position during a volatile market.

Quality of stocks in the portfolio

Before investing in a particular fund, check the quality of stocks in the fund’s portfolio. Good quality stocks will help you generate returns, thereby improving the overall performance of the fund and vice-versa.

Relative Performance with Peers

It is very important to check how the mutual fund is performing as compared to other funds in the same category. It is advisable to invest in a fund which gives better returns when compared to its peers.

Track record of the Fund Manager

Fund Manager is the person who makes investment decisions and selects the stocks in your portfolio. Hence, it is very important for a fund manager to have a good track record when it comes to stock selection. Always check the track record of the fund manager in terms of return generated by his funds before investing in a mutual fund.