How to Track the Performance of Your Mutual Fund?

Investments in mutual funds and other forms of financial instruments require some financial knowledge and awareness about their working. When you put your hard-earned money in a mutual fund scheme you do it to earn some good returns to help you achieve your financial goals. To ensure that your SIP investment is going in the direction in which you expected, you need to keep an eye on its performance from time to time. How can you do that? Let’s find out.

How Frequently Should You Track MF performance?

Stock markets tend to fluctuate a lot thereby affecting the investments made by mutual funds. To ensure that your mutual fund investment is safe you need to track its performance from time to time (generally every six months). Evaluating the performance of your mutual fund investment every day or every month is not practical and will also not provide you a clear picture.

Tracking your mutual fund performance is also important to ensure that your decision to invest in a specific scheme was right and will help you achieve your financial goal. You need to keep checking:

• Whether the fund is adhering to the original investment allocation of funds between debt and equity investments. Any change in the allocation can affect the risk profile of the scheme thereby affecting the expected returns.
• Whether there has been a change in the fund manager because this may lead to a change in the style of functioning of the fund and its investment.
• Whether the fundamental attributes of your mutual fund scheme remain the same

How to Track Performance?

The easiest way to track the performance of your investment is checking the monthly fund fact sheet provided by your mutual fund service. The sheet provides an overview of the various mutual fund schemes managed by them with details like the scheme’s portfolio and performance in terms of the Compound annual growth rate or CAGR, standard deviation, Beta and Sharpe ratios. Also, do check the NAV or the Net Asset Value of your fund.

But is that enough? No, you will need to carry out further analysis. Here are some important tips that will help you in tracking the performance of your mutual fund investment:

• Identify Similar Schemes: Check for plan similar to the ones in which you have invested. This will help you compare the performance. You can easily find such information on the sites of third-party mutual fund services providers.
• Check the Historical Performance Data of a Scheme: While past performance is not always an indicator of the future performance of a fund, it does give an indication. You can analyse and study how the fund has performed over different time-periods in different levels of markets. Consistent performance by a fund in different phases of market cycles is a positive indicator of the ability of the fund managers.
• Performances Against Indice: The performance of funds investing in equities or other commodities can be compared against the performance of the respective benchmark indices. This comparison gives you a fair idea about the efficiency of the fund managers in handling different market scenarios.
• Changes in Portfolio Holdings: Look for considerable changes and overlapping of portfolio holdings. High churn in your portfolio is not a good sign in many cases and may indicate the increased vulnerability of your holdings.

In case you are not happy with the performance of your mutual fund, you can review or rebalance your investments.