Avoid daily tracking of mutual fund performance He is worried about his investments not performing well, but is not sure what he should be doing
Niren Sharma has invested in mutual funds and wants to see his investments make money. He goes through the NAVs that are published daily, besides checking several financial websites. He gets very anxious every time he sees a fall in the NAV. The performance numbers published by the mutual fund in the factsheet look very different from the returns he sees online. He is worried about his investments not performing well, but is not sure what he should be doing.Niren Sharma needs to understand that scheme performance should be matched with the recommended time horizons. Liquid fund returns are measured over shorter periods and are annualised for comparison across products or time periods. Tracking equity fund NAVs too frequently or trying to annualise returns can lead to bizarre results.
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To avoid disappointment due to shortterm volatility, these must be evaluated over longer time horizons of at least three years. Tracking returns daily assumes these will always rise, which isn’t realistic. The returns provided in a mutual fund’s factsheet are based on Sebi guidelines, reflecting point-to-point returns over standardised periods, typically one or three years. These figures may not coincide with Sharma’s holding period.
These are standard returns for standard time periods, assuming that an investor came in at the starting point and got out at the end point. Sharma may have invested not only at different starting points, but could also have added to his investments in the interim. Therefore, his returns would be different depending on how much he invested, and when.
Hence, Sharma should understand that evaluating a fund and his own investments are completely different exercises. If the objective is to see whether he should stay invested, he should focus on judging the fund, not how his investment has been performing. He must compare its performance with similar funds in its category at regular intervals using the standard published data. If its performance remains below category average or benchmark index consistently, while most of its peers are doing well, it might be a strong reason for Sharma to consider switching his holdings. If his fund is doing fine, he will benefit from staying invested.
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Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
