How to Monitor Your Mutual Fund Investment Performance

investment options available in the market. This is because mutual funds offer diversified types of investment which invests the funds in different types of securities which also diversifies risks. But before investing in a mutual fund, one must consider various factors that can help them make a wise investment decision. Investors usually consider the past performance of the fund, but that might not be enough to make the correct decision. This is why one should know the process of monitoring a mutual fund’s performance so that one knows if they’re going in the right direction or not.

Compare Against Benchmark

One of the factors to consider when monitoring your mutual fund investments is to compare the fund with its benchmark. A fund is considered good when it constantly beats its benchmark. A benchmark is something that is used to track and measure the performance of a fund against it. So, before investing in a mutual fund check if the fund has crossed its benchmark or not, which suggests it has decent potential.  

Compare with Similar Funds

Another factor that can be considered for monitoring the performance of the fund is comparing the fund with similar funds. This helps one understand the fund’s historical performance, risk levels, cost structures, and investment strategies. This in turn helps to understand whether the fund is performing to its potential or not.

Consider Expense Ratio

Every fund includes some charges that are incurred to effectively manage the fund. These must be an essential factor that should be considered because this affects returns. A fund’s actual returns are considered only after subtracting the essential expense ratio from the returns. These fees often include annual operating costs, management fees, allocation charges, advertising costs, etc.

Risks Attached

When monitoring a mutual fund’s performance, it’s crucial to assess the risks associated with the investment. This involves understanding the fund’s volatility, which can be measured by indicators like standard deviation or beta. When the risk is higher it’s not necessary that the fund would perform poorly, but one should always check if it’s matching their risk-taking ability. The returns of various funds can be measured through the Sharpe ratio or Sortino ratio. This helps understand if the fund is delivering returns according to the risks one is taking.

Fund Manager’s Tenure

The tenure of a fund manager can significantly impact a fund’s performance. A longer tenure indicates that the manager is well-qualified and can better handle a portfolio. When monitoring performance, consider how long the current manager has been overseeing the fund. Look how the fund performed when they were managing it. A manager’s track record can provide insights into their ability to handle different market conditions and maintain the fund’s objectives over time.

External Factors

Some external factors must be considered as well when monitoring the performance. Factors like economic conditions, market trends, geopolitical conditions, regulatory changes, and other conditions. This is essential because things like, a sudden economic downturn might negatively impact equity funds while benefiting certain debt funds. Understanding how these external factors affect your fund’s performance can help make more informed decisions. 

Conclusion

Only investing in a mutual fund is not enough, tracking the performance after investing is equally important. This tracking can be easily done from mutual fund apps like the Tata Capital Moneyfy app which offers various research and analysis tools for easy monitoring. The factors to be considered for monitoring the performance of the fund can be comparing the fund against the benchmark, considering the expense ratio, and considering external factors.  In addition to this, also consider risks attached to funds, similar funds, etc.