Analyzing the performance of mutual fund investments can help retail investors to conclude whether they are headed in the right direction or whether they need to rebalance their portfolio. However, if you are new to financial planning or mutual fund investing in general and are looking for ways to analyze your mutual fund performance, here are some tips that might help:
Analyze whether the scheme is performing as per its underlying benchmark
Every mutual fund scheme has a benchmark against which it compares its performance. There are various indices like NIFTY50, BSE200, CNX MIDCAP which are used by mutual funds as their benchmark. If the mutual fund scheme you have invested in is performing well and outperforming its benchmark, it means that your investment is paying off at least over that period of time. If the Mutual Fund scheme you have invested in does not match the performance of its underlying index, it may indicate poor performance of the fund. Investors are expected to measure the performance of a mutual fund against its benchmark over a long period of time. This will give you a fair idea whether the fund has the potential for capital appreciation in the long run.
Compare performance with similar plans
Another way for retail investors to measure the performance of their mutual fund is to compare the performance of the scheme with other mutual funds falling in the same category. For example, if you are investing in a children’s fund to create a corpus to secure your child’s future, check out other mutual funds that fall in the same product category. Similarly, if you have invested in a
equity fund
Compare the performance of that fund with its peers. By doing this you can get an idea whether the entire segment (equity, debt etc.) is underperforming or just the scheme in which you have invested is doing poorly.
Study Net Capital Growth
Your overall capital appreciation on mutual fund investments is a combination of the total increase/decrease in NAV and dividends earned through these investments over a period of time. Evaluating the overall capital appreciation can give you a fair idea about the potential performance.
Check if the scheme has a diversified portfolio
One of the reasons why investors consider mutual fund investments is that they are considered to have a diversified portfolio. Depending on the nature of the scheme and its risk profile, a mutual fund invests in different asset types of instruments. Investors are advised to ensure that the portfolio of the mutual fund in which they invest is diversified and is not biased towards any particular industry/sector.
Check past performance of the fund
Now it is true that the past performance of a mutual fund may or may not reflect on its future performance. However, when you do some data research to analyze the past performance of a scheme, it can help you analyze how this particular scheme has performed in different market cycles. It can also help you determine whether the scheme has been performing consistently well over the past 5 to 7 years. One should generally choose a consistently performing fund rather than placing their bets on top performers.
If the investment goal of the scheme aligns with yours
Last but not the least, investors are advised to ensure that the investment goals of the scheme align with theirs. For example, if your ultimate financial goal is to build a retirement corpus, then you should invest in a retirement scheme or a scheme that gives you capital appreciation in the long run. There is no point in investing in debt schemes. another example; If you are planning to set aside your money for emergencies or contingencies then investing in liquid schemes can be better than investing in equity schemes. Hence while analyzing mutual funds, investors are expected to ensure that the scheme has the potential to live up to their expectations.
After all, tracking the performance of a mutual fund may not be that difficult. But investors are expected to determine their risk appetite before making a final investment decision. This is because investments made in mutual funds are exposed to market volatility and the returns from these investments are never guaranteed.
“This is an investor education and awareness initiative by Axis Mutual Fund. Investors need to complete a one-time KYC process. For more details visit www.axismf.com or contact us at [email protected]. Investors should only Should deal with registered mutual funds, details of which are available at www.sebi.gov.in – INTERMEDIARIES/MARKET INFRASTRUCTURE INSTITUTIONS section. For any grievance redressal, investors may call us at 1800 221 322 or write to us at customerservice@ axismf.com or register a complaint on SEBI Scores Portal https://scores.gov.in.
Mutual Fund investments are subject to market risks, read all scheme documents carefully.