Investors should evaluate the quality of mutual funds from time to time

K. ARAVIND

Equity schemes of mutual funds are the best way to make equity investments in the long run to achieve life’s goals. Evaluating the performance of invested funds is just as important as choosing the best funds to invest in.

It is the nature of many investors not to think about it once they have invested. However, since the performance of mutual funds is related to fund management, their performance needs to be monitored during the investment period. The performance of mutual fund schemes does not need to be checked on a daily basis but should be evaluated at least once in six months. This can be done on your own or with the help of an expert.

The Fact Sheets, which are issued by mutual funds every month, contain the information required to evaluate the performance of funds. The fact sheet is available from the fund houses’ websites. The fact sheet contains information about the portfolio of each scheme and the number of shares held recently. There will also be information on the various ratios that are important in evaluating the performance of the schemes.

The performance of a mutual fund scheme cannot be assessed on its own. To evaluate the performance of a fund, one needs to compare that fund with other funds in the category involved. It needs the help of experts. You can also rely on independent websites that provide comprehensive information on mutual fund schemes for comparison. Comparisons can be made over different periods of time, such as six months, one year and three years.

The investor needs to evaluate the changes in the fund management. If the fund manager changes, the investment pattern is likely to change. Check the performance history of the new fund manager and changes in the portfolio under the new fund manager.

Changes in the investment method will be reflected in the performance of the fund. From the point of view of fund managers, the investment ratio in large and medium stocks may change. Following a change in the manager of a scheme fund investing heavily in large stocks, the nature of the fund itself may change if the investment in medium-sized stocks increases.

Investors should not make decisions based on the performance of the short-term scheme. If the performance of one fund goes down by one month or three months, do not think of selling and switching to another fund. Investors should be prepared to wait between six months or a year after the change of fund manager. Only if the performance has not improved by then should the investor think about changing the scheme.