How to Evaluate the Performance of a Mutual Fund

4 mins read
by Angel One

How to Evaluate Mutual Fund Performance

Investing in mutual funds entails taking on a certain amount of risk. Mutual fund performance, on the other hand, maybe measured using a mathematical computation of past returns. The relationship between potential risk and prospective returns is always presenting possibilities to participate in mutual funds and generate maximum potential profits with the least amount of underlying risk.


Benchmarking is the process of comparing the quality of a fund to a set of standards. When compared to the funds’ peer markets, it serves as a benchmark. Benchmarking enables you to compare the performance of your mutual fund investment to the market competitors, regardless of your investing goals. You can assess the relevance of the performance benchmark for your assets by comparing past results to market circumstances. However, past performance is not a good predictor of future outcomes.

Comparing to peers

The efficacy of your mutual fund in the same category is measured by its relative performance to its peers. Mutual funds strive to be at the top of the fund universe’s rating. The comparable peer performance is advised in order to get a greater return for the set duration of value learning.

Portfolio quality

The capacity of stocks in the portfolio to provide higher returns on money invested for a specified length of time reflects their quality. It’s a good idea to look at the mutual fund’s industry-leading position. The quality of the equities in the portfolio will be reflected in the returns, and hence the performance. Qualitative data and mutual fund performance history would aid in assessing performance.

Risk-Adjusted Returns

The calculated returns on your assets relative to the risk indicated over time are known as risk-adjusted returns. When two mutual funds with the same percentage return over the same time period are compared, the lower risk funds have greater Risk-Adjusted Returns.

Fund manager’s expertise

Your fund manager is a key figure in the portfolio, making investing and stock selection choices. Recognize your fund manager’s expertise based on his or her fund management knowledge and abilities. The historical performance of your fund manager would be an excellent metric to use to monitor his or her track record, and it may prove to be quite beneficial to your investments.

Define your investment objectives

What is the purpose of my investment? The answer to this question should guide your mutual fund decisions. If you want a stable income with capital protection, you may invest in a debt fund. Equities, on the other hand, would suit your demands if you desire to grow your money and have a higher risk appetite. As a consequence, determining your financial goal before choosing an investment is crucial.

Fund’s Fee Structure

You pay a mutual fund firm for its services and expertise. Some funds need careful management and prompt choices on whether to acquire, sell, or keep an asset. Keep in mind that a fund with a larger charge is always preferable. Before making a decision, be sure to look at all of the options.

What are the benefits of keeping track of your portfolio performance?

You may have noticed the disclaimer that a fund’s past performance is no guarantee of future performance. It means that you can’t expect a specific rate of return on your investment. As a consequence, you must go beyond previous years’ success while analyzing a mutual fund. To begin, you should keep track of your investments so that you can make informed decisions that will increase your profits. You’re aware that the stock market fluctuates in response to general economic changes. A change like this throws the portfolio’s asset allocation off. A change in fund management or the fundamental features of your fund may also prompt an evaluation. As a result, a review and rebalancing of the portfolio may be required to maintain the risk profile.

How Often Should You Evaluate Your Fund’s Performance?

The stock market is prone to swings. That does not, however, imply that you must evaluate the fund’s performance on a daily basis. Depending on the duration of the investment, you should examine your fund every six months to a year. A shorter time of evaluation does not provide an accurate picture of the success of your assets. If all of this is too much for you, you may put your money into normal funds. They advise you to invest in funds based on your financial objectives and risk profile as certified intermediaries.