Analyze Different Funds Across Different Time Periods

By | May 2, 2012

The first important step to a secure your financial future is by initiating the habit of investing. The early you sign up for this initiative the better off you will be. It will not only enable you to build a sizeable amount of corpus for your post retirement life or for financing any of your other financial requirements but also it will keep you away from the possibility of signing up for debts like a car loan or a personal loan etc to finance your requirements. If you are an investor who views the selection of mutual funds as a gargantuan task, then worry no more, as we guide you on what is the best way to select the most profitable funds that will fetch you a good investment deal. One of the best and easiest ways to understand the performance of a mutual fund is by analyzing its behavior over a specific period, say on a 3-5 year scale, and then opting from amongst the top performers. By making an analysis in this manner, investors will be able to make an informed decision as different funds perform in a different manner, in different time frames. For example, a fund would have performed considerably well over a period of 5 years, but would seem unprofitable when studied on a 3 year basis. Thus, as an investor, it is integral to evaluate funds across multiple time frames in order to make the best choice on the basis of historical performance.

The term outperformance means that a fund has performed much better than what was expected out of its benchmark. In order to aid you in this process, we have illustrated the performance of a few top fund houses over various time frames, ranging from a period of 3 months to 6 months. Our analysis mostly includes funds pertaining to the categories of various equity funds, and other mid-cap and small-cap funds. For instance, Tata Dividend Yield Fund’s AUM scheme grew by a margin of 56% that is the fund has seen a growth from an amount of Rs. 150.74 crore to Rs. 235.02 crore. IDFC Premier Equity Fund’s AUM showed a growth spurt of 44%, i.e., from Rs. 1,674 crore to Rs. 2,411 crore. The portfolio turnover ratio also showed how shortlisted funds scored heavily with profits, showing the frequency with which funds were purchased and sold off by the fund manager. In the normal course, the lower the ratio of the portfolio, greater the profit since it signifies lower transaction costs involved in the process.

Thus, when it comes to making a decision amongst various categories of mutual funds, select a mutual fund that comes closest to your investment horizon and the amount of risk you are willing to bear. Also, factor in time as one of the major factors as well. If you can afford to spend time analyzing the markets daily trading can benefit you if not investments in Mutual Funds which can be re viewed every year can be opted. Once you have shortlisted your choice based on these categories, analyze thoroughly the historical performance of mutual funds over different time periods.  It is important for an investor to be thorough in his research at this stage, as any discrepancy on this part, may lead to an accumulation of losses for the investor in the future. Acquiring first hand information especially from primary sources like banks or financial advisors is what is best advised. Do not heed to the advice of other fellow investors since their financial goals and risk appetite will vary from yours. Remember it is your money that is at stake so make prudent decisions and make the best use of the opportunity you have at hand.

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