How to track the performance of your mutual funds

How to track the performance of your mutual funds?

Mutual funds are one of the most preferred avenues of multiplying investments over the years. But to keep a regular track of the fund’s performance, you must understand the necessary risk elements associated with it.

Mutual fund houses release the performance sheet of the funds every month. Investors should track performance by multiplying the fund units with the current NAV and adding the received dividends.

Comparing this amount with initial projections helps to identify whether the ongoing mutual fund is in alignment with the set financial goals or not. 

Investing in a mutual fund scheme is not the end game as it will not ensure the achievement of your investment goals. Investors must track performance and review regularly to determine whether that specific scheme can meet their investment needs adequately.

Track the performance of your mutual funds

Different parameters and tools to track the performance of mutual fund schemes include-

1. Mutual fund ratios

Mutual fund ratios like standard deviation, Sharpe ratio, alpha, beta, and concentration ratio are primary tools to assess, analyze and track the performance of mutual funds. The numerical figures help to identify and compare vital information in simple terms so that the investors can understand the overall scheme.

For example, a positive alpha means that the scheme is profitable as it has surpassed the benchmark index. Similarly, a higher Sharpe ratio signifies the potential for higher returns and encourages investors to opt for the scheme.

2. Fund fact sheet

A fund fact sheet is published by the AMC every month to show the growth of the investments. Keeping a track of this report card helps investors to know how the money is allotted in different schemes, the size of the investment, and overall fund performance in terms of standard deviation, beta, CAGR, and Sharpe ratio. 

The fund fact sheet lists all the schemes in an easy-to-read manner and compares the mutual funds in the same category. Investors can know about the fund’s performance and turnover compared to other schemes. 

Additional read: How to know you are investing in the right mutual fund?

3. Historical returns

One of the simplest ways to track performance is by comparing and checking the historical returns for at least 5 – 15 years. These act as viable scorecards and allows investors to check the returns over a specific period. 

Investors must treat historical returns as performance indicators to look for consistency and solid fundamentals in the schemes. 

A regular spike in returns shows that it is the right mutual fund for investing and a one-time occurrence acts as a red flag and urges investors to stay away from it. 

4. Portfolio composition

Tracking mutual funds through portfolio composition helps to check the portfolio holdings. It also helps to verify whether the stocks included in the portfolio can generate higher returns and comply with the risk profile that the investor had foreseen at the time of investing. 

Portfolio composition is used to understand whether the scheme is made of quality assets and whether it can handle short-term market volatility. 

5. Expense ratio

The expense ratio is the overall expenses incurred in the mutual fund schemes charged to the investor. It minimizes the NAV and thus has a direct impact on the returns. 

A lower expense ratio means higher returns because of minimum commission or intermediary fees. Using this tracker helps to choose the funds that will give the highest possible returns. 

5. Peer factor

One of the simplest ways to track the performance of your mutual fund is by comparing it against peer performance. 

Investors must compare the scheme in the same category to get accurate results, for example, compare a blue-chip fund like Axis Blue Chip Fund with SBI Blue Chip Fund to know which one is showing better results.  

6. Benchmark performance

Keep a track of the investment by comparing it with the benchmark performance. Investors can know whether the fund is showing a good performance by outperforming the benchmark index or if it is a below-par investment.

A higher benchmark index means lower returns and vice-versa. When a mutual fund generates more returns than the benchmark index then it is the right fund for investing. 

7. Risk-adjusted returns

Track performance by comparing two funds with similar returns. The risk-adjusted returns help to identify and choose the fund with less risk option.

Investors should be aware that funds with low risk than the benchmark will yield low returns and more risk will generate higher returns. 

8. Rolling returns

Checking the average of rolling returns helps to maintain the consistency of the mutual funds. It tracks the fund’s behavior in terms of volatility, loss proportion, and outperformance. 

When the rolling returns are higher than the benchmark, it means that the investment will yield better results. 

9. Online portfolio trackers

Online portfolio trackers help to track and monitor mutual fund investments in a hassle-free way. The online platforms provide an updated value of all the investor’s funds. 

A perfect example is EduFund’s scientific fund tracker which helps to track and monitor more than one lakh data points and 400+ financial situations. The RIA-registered app uses 128-SSL security for tracking transactions in a safe environment. 

track the performance of your mutual funds

Advantages of tracking the performance of your mutual funds

Both new and seasoned investors should track the performance of mutual fund schemes for the following reasons-

  • The mutual fund industry assures good returns but every scheme will not give high returns. Tracking performance and comparing the different schemes help to identify and choose the best scheme with consistent returns.
  • Tracking performance regularly helps to stay in the loop and determine whether the funds are giving the expected returns. Investors can either add more units, stay invested or switch to profitable funds based on the performance of the fund.
Conclusion

Investors can use the above-mentioned tools to track the performance of their mutual fund schemes. Due diligence helps to measure the profitability of the fund, conduct informed decisions and keep hard-earned money safe.

Consult an expert advisor to get the right plan for you

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