How to Evaluate the Performance of Mutual Funds

Like other investment avenues such equity, provident funds, a mutual funds investors do like to evaluate the performance of mutual funds. But as we know that this evaluation for each and every type of investment is different. So it has to be a different way to evaluate the performance of mutual funds. 

As an investor when you are starting to evaluate the performance of mutual funds, you need keep these points in your mind. 

Define the Investment Goals

This is the most important part of evaluating the performance of mutual funds. It must be clear as, ‘What is the purpose of your investment?’ you are looking for regular income with capital protection or capital appreciation for wealth creation. The answer to this question is crucial in the process to evaluate the performance of mutual funds. 

Compare with Peer Funds

You need to have performance data of peer mutual funds and if you don’t have, it’s very difficult to evaluate the performance of a mutual fund in isolation. So, you have a performance of data of a small list of other funds. Remember this list of peer must not be large else it would be evaluation more difficult. 

Check the Historical Performance Data 

Though past performances of mutual funds don’t guarantee similar performance in future but it tells the capability of fund manager. However it still gives a lot of information about the future performance of the mutual. It provides answer to the question whether the fund has been able to offer consistent return or not. So if you have information on previous return you can compare that with the present return. 

Fee Structure of the Fund 

It is another important aspect of mutual fund investment. You must check and compare the charges for the services in form of fee. Higher or lower fee alone don’t guarantee the superiority of the fund. Other parameters must be checked before investment decision. 

Performance against Benchmark Index 

Every fund evaluates its performance against a benchmark index. So the returns from must be evaluated against that index only for the given time period along with peers. It provides insight into the performance efficiency of mutual funds. 

Risk-Adjusted Returns 

Risk adjust returns of funds can provide insight about the fund against expected risks. Though, this measure is difficult to use for novice investors.

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