How to Analyze Mutual Fund Performance (2024)

FAQs

How to analyze a mutual fund performance? ›

Expenses, Loads, and Other Fees. Academics agree that the best known predictor of mutual fund outperformance is expenses.

Since you hold investments for different periods of time, the best way to compare their performance is by looking at their annualized percent return. In this example, your annualized return is 9.42 percent. Tip: Use FINRA's Fund Analyzer to find annual and total return for mutual funds and ETFs.

Consider looking at the risk-adjusted returns to assess how well a mutual fund performs compared to the risk taken. It includes evaluating metrics like the Sharpe ratio to measure risk-adjusted returns and the standard deviation for volatility.

Sharpe ratio: It measures the excess return per unit of risk. Higher Sharpe ratios indicate better risk-adjusted returns. This ratio helps you compare funds with similar risk profiles. It is particularly useful in assessing the efficiency of a fund's investment strategy.

Fund's expense ratio

Mutual funds levy an expense ratio, which represents the annual cost of managing the fund as a percentage of its assets. It's a critical consideration when selecting mutual funds because the expense ratio is deducted from the fund's assets, directly influencing your returns.

Compare the Fund's Performance to that of its Benchmark

You will know about a fund's benchmark in its factsheet. If the fund has delivered returns above its benchmark, it has performed well. On the other hand, if it has delivered returns below it, it's said to have underperformed.

How do I compare equity mutual funds? To compare equity mutual funds, look at the fund category (large-cap, mid-cap, etc.). Next, assess the historical performance to check how consistently the fund has delivered returns. Also, look for the expense ratio and the fund manager's track record.

For a Single Mutual Fund

Use Morningstar Investment Research Center. From the homepage, either enter the mutual fund name in the search box, or in the top menu bar select Funds > Mutual Funds to browse. Select a mutual fund to see the overview report.

How to read a mutual fund? ›

Before buying shares in a mutual fund, read the prospectus carefully. The prospectus contains information about the mutual fund's investment objectives, risks, performance, and expenses. Understand that you can lose money investing in mutual funds. Mutual funds are not guaranteed or insured by any government agency.

Evaluate Returns: Compare the performance of your mutual funds against their respective benchmarks and peer funds. Analyze returns over different periods (1 year, 3 years, 5 years) to get a comprehensive view of performance. Below-average returns mean the investor should change the fund.

These four Ps are 1) Planning, 2) Patience,3) Performance and 4) Persistent. These four Ps are traits of investments which can help us achieve not just the financial goals but also make us get handsome returns from the market.

How do I compare equity mutual funds? To compare equity mutual funds, look at the fund category (large-cap, mid-cap, etc.). Next, assess the historical performance to check how consistently the fund has delivered returns. Also, look for the expense ratio and the fund manager's track record.

One of the most common ways to measure a mutual fund's performance is to look at its returns over different periods, such as one year, three years, five years, or ten years. You can find this information on its website, prospectus, or fact sheet.

The best way to determine the charges is by checking the fund's prospectus. The management firm will pay any charges based on the fund's daily net asset value (NAV) from the no-load mutual fund's assets. This method of payment impacts the investor when they receive a smaller distribution.