Mutual Funds Performance is dependent on a number of factors.
The investment portfolios of the Mutual Fund is managed or supervised by the Investment Manager or the Fund Manager. He does a financial forecasting about the performance of the fund in the future. He suggests the investors what would be the suitable investment for the Mutual Fund. He chooses the funds that he thinks would be appropriate and matching the investment objectives mentioned in the prospectus of the fund.
The advantages available from investing in Mutual Funds are more than the advantages of investment in individual stocks. The transaction costs are distributed among all the unit holders or shareholders. Mutual Fund Shareholders are also benefited by Professional Fund Managers who work as a third party and offer their expertise for management and research of investment options. In spite of this, Mutual Funds also carry risks. The risks shared are similar to the risks accompanied by the investments. For example, if the primary investment of any Mutual Fund is in stocks, it will face the same risks of rises and falls of the stock market.
For analyzing the performance of a Mutual Fund, certain statistical measures are utilized for comparison of funds in many instances. These measures are converted to a single number, which represents a past performance base.
Alpha: It represents the return of the fund when the return of the benchmark is 0. This expresses the performance of the fund in relation to the benchmark. It also demonstrates the value addition done by the fund manager. If the Alpha is high, then the fund manager is also doing a good job. Alpha investment method supports stock selection methods for achieving prosperity or growth.
Beta: It demonstrates that if the benchmark of a fund moves 1 unit, how much will be the movement of the fund. This describes the sensitivity of the fund to market changes. Beta Investment Plans support asset allocation models for achieving out performance.
R-Squared: It is a measurement of the relation between a fund and the benchmark of the fund. It is valued between 0 and 1. 0 refers to no correlation and 1 refers to perfect correlation. This is an effective measure for determining whether the fund manager does any value addition to the investments or he is just functioning as a closet tracker (imitating the market and not much difference is made).
Standard Deviation: It measures the volatility of the performance of the fund for a period of time. If the Standard Deviation is high, then there is more chance that the performance of the fund would be variable. If there is high historical volatility, there may be high future volatility as well, so there is increased risk of investing in a Mutual Fund.
The performance of a Mutual Fund is dependent on a lot of factors. The performance of a Mutual Fund may be affected by high costs, taxation, over-diversification, and inefficiency of the fund manager to guarantee a higher return.
The investment portfolios of the Mutual Fund is managed or supervised by the Investment Manager or the Fund Manager. He does a financial forecasting about the performance of the fund in the future. He suggests the investors what would be the suitable investment for the Mutual Fund. He chooses the funds that he thinks would be appropriate and matching the investment objectives mentioned in the prospectus of the fund.
The advantages available from investing in Mutual Funds are more than the advantages of investment in individual stocks. The transaction costs are distributed among all the unit holders or shareholders. Mutual Fund Shareholders are also benefited by Professional Fund Managers who work as a third party and offer their expertise for management and research of investment options. In spite of this, Mutual Funds also carry risks. The risks shared are similar to the risks accompanied by the investments. For example, if the primary investment of any Mutual Fund is in stocks, it will face the same risks of rises and falls of the stock market.
For analyzing the performance of a Mutual Fund, certain statistical measures are utilized for comparison of funds in many instances. These measures are converted to a single number, which represents a past performance base.
