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How to Track Mutual Funds
Making your mutual fund investments is only half the job done. Once the investment is done, tracking it from time to time becomes equally important. Most of us take advice and do the due diligence before choosing our mutual fund investments. However, once they are done, we often forget about them until a need arises.
Almost everything, from your vehicle to your health, needs a regular check-up and that is also true for your mutual fund investments. While you may not need to keep a check on a daily basis, it is always a good practice to keep yourself aware of the progress and changes in your mutual fund portfolio.
A fund fact sheet enables you to monitor your mutual fund investments easily. It is a like a report card denoting the progress of your investments.
What is a Fund Fact Sheet?
A fund fact sheet is a document detailing each of the schemes managed by the AMC or the mutual fund. It is published monthly by the fund house and is in an easy-to-read format. It includes the following details:
Performance of the schemes. It gives the performance in terms of compound annual growth rate or CAGR, standard deviation, Beta and Sharpe ratio.
Division of your investments or how your money has been deployed in securities.
Size and investment details of each scheme managed by the mutual fund.
The fact sheet can be easily found on the mutual fund website and reviewing it is an ideal way to monitor your mutual fund investments.
Tracking fund performance
Mutual fund websites list their Net Asset Value (NAV). You can compare the mutual fund’s benchmark index, the index chosen by the mutual fund company to serve as a standard for its returns.
To know how your fund is performing, you should also compare it with other funds in the same category. A mutual fund scheme’s performance cannot be judged in isolation. In addition to the fund fact sheets of the schemes, there are also dedicated websites that track mutual fund performance. You can keep track of how your scheme is performing vis-à-vis its peers in the same category over a monthly, quarterly or a half yearly period.
When looking up the report card of your invested scheme, it always advisable to look out for the below important parameters and changes that may affect the performance of the fund.
Look out for these changes
Change in the management team. While it is normal to have changes in the management over a period of time, frequent change of the fund manager may be a red flag. Change in the fund manager often leads to a shift in the investment style. In such a case, it becomes equally important for you to track the changes in your portfolio to ensure the investment objective is maintained.
For example, if you have invested in an equity mutual fund scheme that primarily focuses on mid-cap companies, then 60-70% of it should consist of stocks of mid-cap companies. However, when checking the fund fact sheet, if you see that a new fund manager has changed the composition of your portfolio and it now has almost 50% of large-cap stocks, it may signal a shift in the investment style.
High churn in the portfolio. High churn or turnover in your mutual fund portfolio on a regular basis could be a cause of concern. High churn doesn’t always mean high returns. On the contrary, it may do more harm as it eats into your returns with higher transaction costs.
Higher churn may also denote short-term focus in some cases. While a short-term focus may give higher returns over a short period, it may make your portfolio vulnerable and exposed to unnecessary risks over a longer term.
So how much is too soon or too long for a mutual fund scheme when checking these parameters and tracking such changes?
It is suggested that you give at least 6 months to any mutual fund scheme, when checking for these red flags. A month or a quarter may be too soon to evaluate the performance of the scheme after any change. Do not get influenced by the short term performance and triggers in your fund and give it some time to prove its worth and meet its investment objective.
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Check the NAV at periodic intervals through stock reports in newspapers or online through stock websites.
When comparing a mutual fund scheme with its peers, make sure that you have chosen the same category and time period.
If the change in the investment strategy continues even after 6 months, evaluate the scheme's risk profile and check if it still meets your financial objectives.
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