How To Evaluate The Performance Of Mutual Fund Investments

  Author: Kundan Kishore

Most investors consider performance as the primary consideration for buying a mutual fund. That’s why it is ironical that they make the biggest mistakes when evaluating the performance of their mutual fund investments. Here are some steps you can take to help yourself evaluate the performance of your investments.

Establish a system to monitor performance Monitor the performance of your mutual fund investments at regular intervals. Track your scheme's net asset value (NAV) periodically, say, on a quarterly or half-yearly basis. Also, be on the look-out for changes in your fund’s portfolio. In case of equity funds, compare your scheme's performance with that of the benchmark and Sensex, or similar schemes of other mutual funds.

As part of your performance monitoring activity, ensure that your fund adheres to the objectives stated in its offer document. For this, you need to keep track of periodic statements like newsletters, besides half-yearly and annual reports. You need to read them thoroughly and keep them handy for future reference.

If you have queries related to your fund, make it a point to contact the investor service centres or your mutual fund advisor. You can also get information from some mutual fund websites that provide information on schemes, NAVs, the industry and the investment outlook.

Examine the reason for any underperformance If your scheme fares badly for two consecutive quarters, find out whether it is because of a depressed capital market, or due to reasons specific to your scheme. Don't get too bothered if your scheme underperforms in a rapidly rising market. However, if it is underperforming in a falling market, i.e. the fall in the scheme's NAV is greater than the fall in its benchmark index, review your investment.

Do make it a point to read the fund manager's comments in newsletters and the annual reports. You need to continue with the scheme only if you are satisfied with the explanations provided. If you can’t do frequently follow-ups, make sure you track your fund at least every 18-24 months.