How to track the performance of your mutual fund

How can you determine if your mutual fund scheme is providing satisfactory returns? While it may have delivered double-digit returns last year, is that truly sufficient? It's hard to say, isn't it? Evaluating a scheme's performance in isolation won't answer that question. This is a common challenge for many mutual fund investors.

Here are some tips to help you navigate this issue.

Each mutual fund scheme is required to have a benchmark. Always compare your scheme's performance against this benchmark. Doing so will give a clearer picture of how well the scheme is performing. If the scheme outperforms its benchmark, it indicates strong performance. A significant margin above the benchmark suggests that the fund manager possesses excellent stock-picking abilities.


Scheme vs category
The mutual fund scheme has exceeded its benchmarks. However, that doesn't automatically mean it's impressive. It's important to compare its performance against its category. Checking the average returns within the category can help you determine if your fund is performing above average. Additionally, comparing it with established peers can provide insight into its position within the category.

Look at the portfolio
The fund performance may have exceeded the average within its category, but the question remains whether it is a viable investment option. To ascertain this, you may examine its portfolio. Carefully analyze the stocks included; do they align with the fund's mandate? Additionally, does the stock portfolio correspond to the risk profile you envisioned?

Checking ratios
You may examine the key ratios associated with the fund. Experts in mutual funds typically monitor ratios such as standard deviation, Sharpe ratio, Sortino ratio, mean, alpha, and beta, among others. Understanding the fundamental purpose of these ratios allows you to compare a scheme's ratios with those of its competitors, thereby assessing its relative performance.

Market expert Vidya Bala says one should not excessively review the portfolio." Frequent evaluations of the mutual fund scheme may lead to misguided decisions based on short-term market fluctuations. It is advisable to review your portfolio every six months or annually.