Investments in mutual funds have grown remarkably with the advancement of the financial status of people. Yet, after you have decided to invest in a mutual fund investment, it is essential to check the fund’s performance over time. This process is called monitoring your mutual fund performance. Periodic monitoring of funds allows an investor to take suitable decisions while making a mutual fund investment. This article will explore the fundamentals of mutual fund monitoring, the significance of these activities, and how to perform them well.
Why Monitor Your Mutual Fund Performance?
Checking on your mutual fund from time to time is crucial for various reasons. This includes the following.
- Monitor Your Performance and Progress: When you monitor your mutual fund, you realise where you stand concerning your financial goals.
- Avoid Failure: Periodic observations help you identify a fund that is not doing well.
- Make Better Judgement: Performance statistics make it possible for you to assess the viability of fund growth or other investment strategies.
- Market Trends: Maintaining a record of the fund’s performance enables you to understand how certain factors affect the trends in the mutual funds market.
- Review Your Approach: Depending on the performance of the fund, you may consider adjusting your investment portfolio or risk appetite.
How to Monitor Your Mutual Fund Performance?
The following are a few ways in which the performance of your mutual fund can be monitored.
Check Your Account Statements
Usually, most of the mutual fund houses send account statements at certain time intervals, mostly every month or every quarter. Analysis of such statements from time to time gives an overview of how well the fund has performed on investment.
Use Mutual Fund Apps
Most investment firms provide a mutual fund app that allows checking the investments conveniently through a mobile device. These applications usually provide:
- Up-to-date information on the value of the investment
- Performance report of the user’s fund value over a specific period
- Information and notifications regarding the fund
A reliable mutual fund app is one of the most convenient ways of monitoring one’s finances at any time and from anywhere.
Compare with Market Benchmarks
A benchmark is simply a standard that helps one to evaluate the performance of investments. For instance, in the case of an equity fund focused on investing in large companies, one might measure its performance against an appropriate stock market index. The following breakdown explains how you may compare the benchmarks.
- First, look up your fund’s returns for the previous year and subsequent 3 years and 5 years
- Find the same information on the benchmark index
- Then, compare the two figures to determine whether your fund is above or below the average performance of the market
Look at Risk-Adjusted Returns
Sometimes a fund might show potentially high returns because of the high risks incurred by the management. To achieve something closer to the truth, consider the risk-adjusted returns, which show the return of the fund as a function of the risk incurred. Some of these risk-adjusted returns include the following.
- Sharpe Ratio: This depicts the excess returns generated by the fund in comparison to a low risk asset such as a government bond.
- Alpha: This measures the excess returns earned by the management, which can be explained by exposing the portfolio to a particular level of the market.
Check the Expense Ratio
The expense ratio refers to the portion of the investment spent on managing the fund each, year expressed in percentage form. The lower the expense ratio, the higher the percentage of your finances that is being put to work. This information is available in the fund fact sheet or on many financial sites.
Review the Fund Manager’s Track Record
The person managing the fund can have a big impact on its performance. Look into:
- The time period for which the current manager has been running the fund
- Their performance regarding this fund along with other funds they’ve managed
- Changes in the fund’s management team
Use Online Tools and Websites
Many financial websites offer tools to help you analyse mutual fund investments. These often let you:
- Compare multiple funds side by side
- See detailed breakdowns of a fund’s holdings
- Get expert analysis and ratings
Set Up Alerts
Many mutual fund apps and websites let you set up alerts. You can get notifications for things like:
- When your fund’s value changes by a certain percentage
- News about companies the fund invests in
- Changes in the fund’s management
Regular Review Schedule
Set a regular schedule to review your mutual fund investments. This could be:
- Monthly for a quick check
- Quarterly for a more detailed review
- Annually for a thorough analysis and rebalancing of your portfolio
Conclusion
Monitoring your mutual fund investment is an important part of managing your finances. Regularly checking your account statements, using mutual fund apps, comparing to benchmarks, looking at risk-adjusted returns, and checking expense ratios, among others, help you monitor funds effectively. Using online tools, keeping an eye on portfolio changes, setting up alerts, and sticking to a regular review schedule, you can stay on top of your investments. This empowers you to make informed decisions about your financial future.
