Evaluate Mutual Funds - Checklist

Evaluation of Mutual Funds is not solely based on its Performance Only. Most of the people evaluate mutual funds only with their last year performance. But Performance is not the only indicator of evaluating Mutual Funds.

Here is a Checklist of Evaluating Mutual Funds -

01) Compare the Performance with Benchmark -

You should compare the performance of any mutual fund with its Benchmark index before investing in it. Say for Example, if a Fund is Large Cap fund than you should compare it with Sensex and if the underlying benchmark is BSE Top 100 or 200 than you should compare its performance with the relative benchmarks.

Suppose, The Benchmark has given 50% return & your MF has given 55% return during the same time period than it means that it is a good fund.

02) Compare the Performance with Peers (Competitors) -

Comparing the MF with its peers is a best idea. You should compare Mid cap funds with Mid cap peers and Large Cap with largecap. Say for Example, if you want to invest in some power sector fund than you should compare its performance with various other power sector funds.

03) Past 3-5 years of Performance -

Before buying any MF, you should check and compare its last 3-5 years of performance with Benchmark & Peers. You should stay away from NFOs in any case. Because NFOs don’t have any past performance record.

04) Fund Manager -

You should closely watch the fund manager. Because if your fund manager leaves the fund, it may be the time to exit from that scheme. MF returns are mainly dependent on fund manager’s investment strategy.

05) Star Rating -

You should check the star rating with various fund rating agencies. Say for Example Valueresearchonline.com 4-star or 5-star rated funds are the good bet. Fund rating agencies run various advanced portfolio stats. on mutual fund portfolio and gives star rating such as Beta, Alpha, Sharpe, R-Squared…and many other…

So only performance of any fund is not a good indicator to buy any mutual fund. Keep the above points in your mind before investing in any Mutual Funds.