If you're a mutual fund investor, you must have often wondered to have a strategy in place for evaluating your MF portfolio performance. Investors are usually in a bad habit of checking their MF portfolio returns on a daily basis. Simply because your portfolio offers you double-digit returns doesn't necessarily mean it has performed well! On the contrary, you should also not get dithered with single-digit low returns as underperformance! Simply put, returns plainly are not an underlier of any performance measure. When it comes to evaluating your MF performance give your funds a decent time, at least a couple of years, to perform. After which, you should have a strategy in place to periodically review your MF portfolio 'The Right Way' with these measures.
Ok! Let's start with me asking you a couple of questions.
Are you wondering why your Mutual Fund investments aren't performing the way you expected them to?
Are you in a habit of checking your Mutual Fund portfolio returns on a daily basis?
Did you ever wonder on 'How to Evaluate my Mutual Fund performance the Right Way'?
Well, if the answer is a definite 'Yes', you ought to check these 'MF Evaluation Parameters'!
6 Parameters to measure your mutual fund performance:
- Consider Your Investment Horizon and Keep Your Expectations in Check Accordingly:
Mutual Fund investments are usually goal-based and the horizon of such investments can vary from an individual perspective. Now, as you may well know, equity mutual funds tend to offer higher returns in longer terms. Eventually, returns earned by a long-term investor will always be higher than the returns that a short-term investor can expect. But if you expect your liquid fund investments to generate returns as high as equity funds, you'll always be disappointed.
Historically, equity MFs have delivered 12% compounded returns over longer terms. But if the fund that you've chosen doesn't beat the average, it's time to move on and find a better alternative.
- Compare Your Fund with Benchmark Returns:
You cannot measure a fund's performance in isolation. When you say you want your fund to outperform its benchmark index, you're seeking alpha returns. The extra returns that your fund generates over and above the benchmark index is called 'Alpha'. A well-managed fund will always have the ability to beat the performance of its benchmark index and deliver higher returns. It reflects how effectively the strategies of your fund manager have played out. Compare the actual returns of your fund with its benchmark index periodically and if it continuously fails to deliver alpha, you might as well start looking for different options.
Comparing with Peers:
Sometimes it so happens that when your fund is delivering you positive returns, you're still unable to realize the full potential from the value that other investors might be creating. Say your diversified fund has generated a good 10% return in one year. However, peers in the same category might have managed to generate a good 12 – 15 percent returns in the same year. That's a case where you might feel left out from an opportunity that you could have grabbed. So even if your fund is able to beat the benchmark index, you ought to review the category average regularly. If your fund consistently manages to deliver sub-standard returns, you can think to switch to a peer fund that has fared better so far.
Your MF Scheme Should Deliver Returns Consistently :
Capturing the consistency of a fund's performance is also an important measure to evaluate your mutual fund. A fund that’s able to deliver returns consistently depicts its ability to weather different market conditions. A few parameters that check your fund’s consistency include:
The scheme’s ability to beat benchmark returns year-on-year.
Its ability to weather downfall in the markets and keep potential losses under check.
Consistently ranks as one of the top mutual fund performers.
If these parameters check out, well your scheme is definitely performing consistently and there's no need of changing.
Experience of Your Fund Manager:
Most equity mutual funds fare better in every ‘Bull Run’. When the market sentiment is bullish, your fund manager will most likely be able to deliver higher than average returns. But times are tested only during a downfall in the markets. An experienced Fund Manager that has passed through different phases of a market cycle successfully will definitely invest in the right stocks to weather market losses (that will reflect in your MF NAVs). If your fund is managed by such an experienced Fund Manager in the industry, you won’t have to worry about sailing through turbulent times when markets are volatile.
Ratings of Your Mutual Fund Scheme:
Various rating agencies such as CRISIL evaluates the performance different mutual funds based on predefined parameters and ranks them on a scale of 1 to 5 (with CRISIL Fund Rank 1 being the highest). This provides a single point analysis for any mutual fund investor. These ranks are easily available from different portals. A fund that ranks higher is most likely to perform better than its lower ranking peers and it would be advisable to stay with the consistent performers. So check your mutual fund rankings periodically and stick with the winners!
A good combination of these multiple fund performance measures can help you effectively read between those red/green percentage returns. However, if you feel this is too much to take, give the reins of your investment to our expert advisors that stay up-to-date with the best funds available in the market. Feel the taste of our personalized investment services contact us at 022-67136713 or drop a mail at firstname.lastname@example.org.