Investing in the mutual funds is one of the best options to gain the maximum returns for the capital invested in the market. It is a better way to make money. Mutual fund are for long term investment goals. In order to gain the benefits, the mutual funds investments have to be reviewed and tracked regularly. The performance of the mutual fund has to be seen in the right way.
Considering the current situation, where the market is down owing to COVID-19 pandemic, many of you must be thinking how to check whether you should continue to stay invested or redeem your investments. Although if you have invested for long term goals, short term volatility should not bother you. But still we can track the performance of our portfolio and take the informed decision based on the outcome.
Though the future of the mutual fund are not dependent upon the past performance, the performance of the mutual funds are mathematically calculated based upon the performance in history. The mutual relationship between the potential risk factors and the potential returns are the determiners of the performance of the mutual funds.
Here are some of the key points to consider while evaluating the performance of the mutual funds –
- Risk adjusted returns: In general terms, the risk adjusted returns are the calculated returns that take into consideration the risk involved in the funds. For instance, we are comparing two mutual fund with similar returns. The one with the lesser risk will be a better option.
- Benchmark: It is a way of standardizing the quality of the funds. It is considered as a point of reference. Any mutual fund that has outperformed the benchmark is considered superior than ones which have underperformed compared to benchmark.
- Relative performance evaluation: The comparison of the performance of the mutual fund with that of the peer mutual fund is one of the options to track the mutual fund’ performance. It is just a measure of the effectiveness of the mutual funds.
- Evaluate the quality of the stocks: The portfolio of the mutual funds deals in various stocks. It is a point of consideration, whether the stocks are of good quality or not. The stocks will be performing in the market and the returns gained on your investment in the mutual funds are dependent upon the stocks. So it is necessary to track the quality of the stocks in the fund.
- Track the competence of the fund manager: The fund manager of the mutual fund company is the person that chooses how and where your invested capital will be placed to work. The fund manager is responsible for taking all the major investment decisions. One can track the past performance and records of the fund manager to determine the competence and experience in his decisions.
These key factors are used for tracking the performance of schemes offered by the mutual funds. The tracking and evaluation procedures can be done by following the proper guidelines. There are various mathematical models and calculations that can help the individuals to efficiently track the performance.
Various methods by which one can track the performance of the mutual funds –
- Use the various mutual funds trackers that are available in the market. One such platform is “Fintoo”. It is simple to track. You just have to go to your Dashboard, click on the transactions. Next click on the small “i” icon against the name of the scheme. It not only provides you the details about the past performance of the mutual funds but also evaluates how much rate of returns has been provided by the funds in a particular time frame. It helps to understand whether the returns that have been availed over the investment capital are good enough or not.
- Factsheets Fact Sheets are considered as a score card of a Mutual Fund. While referring to the factsheets for the performance of the mutual funds, one must take the help of the financial advisor. The factsheets are generated after the completion of the particular time period and as per the guidelines of the capital market regulator, the mutual funds have to give returns every month.
- Rolling Returns The factsheets do not mention anything about the rolling returns that are provided after a particular time. It is used to maintain the consistency of the mutual funds. So check the average of rolling returns, if the average is higher than the benchmark then the funds are good.
To sum up, you can begin the procedure of tracking the performance by comparing the scheme with the benchmark and if it has outperformed the benchmark, the next step would be to compare the performance with the mutual fund category. Additionally, you can check the portfolio of the scheme and compare it with the peers.
If your fund is not performing based on these factors, then you should switch it to better performing funds. But while doing so, it is suggested that you take help of a finance expert to guide you and optimise your portfolio performance keeping in mind exit loads and taxation.
Current financial situation of almost all the households is suffering owing to COVID-19 pandemic. The reason being layoffs, salary cut, fewer employment opportunities, business going into losses because of low consumption. Amid all this, students’ education is also at stand still as regular classes could not be conducted with the country under lockdown.
As the lockdown has been extended for the third time in a row to stop the spread of coronavirus, technology is coming to rescue with the online classes.
Even if you are trying to manage the current scenario by forcing your kids to attend online classes organized by schools and other educational institutions, at the back of your mind, you would still be worried about your child’s higher education.
You are not alone. Most of the parents are worried about their children’s current education and also how the situation will turn into their child’s future as this pandemic is going to be with us for some time.
No need to worry about your child’s higher education, if it is a long term goal which is at least 5 years away. Early savings can do wonders. In this blog, we will talk about an amazing investment option called SIP.
Many of you might have heard of the investment tool SIP i.e. Systematic Investment Plan. It is one of the best investment tools for a person who wants to save to reach a specific goal or even for a beginner. It’s the power of compounding in a SIP, that allows the person to reach their goal at the specified time. Though the power of compounding can work it’s magic only, if the SIP is invested over a longer period of time.
Education has become very expensive, especially if you want to send your child abroad. To do a post graduation, you will not find any college that charges less than few lakhs, yes it is a big amount. We know that the prices are rising, and you can just take an estimate that Rs. 15 lakhs for a post graduation today, will be how much 10 to 15 years down the line?
It comes up to almost Rs 30 lakhs to Rs. 40 lakhs if we consider inflation at 5% to 7% for 15 years. Whenever you plan for any goal, in this case education, always consider the future value of the cost today. So that you know how much you need to invest to reach that goal and of course in how many years you will require it.
Power of compounding in the most simple words is when you earn ‘interest on interest’. Let me just give you a glimpse of what it means. The below table will help you understand it better:
Must Read : – Everything you Need To Know About Debt Funds
|MONTHS||Opening Balance (Rs.)||SIP amount (Rs.)||Interest @ 12% p.a. (i.e. 1% per month)||Closing balance (Rs.)|
|1||0||6000||60 (6000 x 1%)||6060|
|2||6060||6000||120.6 (12060 x 1%)||12180.6|
|3||12180.6||6000||181.806 (18180.6 x 1%)||18362.406|
As you can see in the above table, in the 2nd month, the interest is calculated on the previous month’s interest and SIP, as well as the new SIP. That is how the Power of compounding works.
Let’s say, Mr. Shetty wants to send his child to the US for his post graduation, when his son is 21 years. His son is currently 6 years old. He wants to start early planning because he knows the prices are only going to hike. He has considered the future value to be Rs. 50 lakhs. He also has Rs. 12000/- to spare every month as SIP in an equity fund, giving an average of 11%. Let us see if the monthly SIP can match his goal amount.
|FUND||SIP AMOUNT (RS.)||RATE OF RETURN||NO. OF YEARS||APPROX.FUTURE VALUE (RS.)|
As you can see in the above table, he reached his goal and has some extra amount too. So the earlier you start, the better for you.
Now SIP in equity funds, can fetch higher returns than SIPs in debt funds. An equity market is volatile as you witness it currently and this is the major reason why it is a risky investment. Investors also search for the right time to invest in the equity market. When in reality, there’s no right time to invest in the market. What many investors don’t know is that you can benefit from the market when it is down too. How?
Well, this process is called Rupee Cost Averaging, this means you get more units at a discounted value. In a layman’s language it means, taking advantage of the market downfall, not literally but, just to understand what it’s about.
Example, If Mr. A, started a monthly SIP of Rs, 12000/-, check the below table to understand it better.
|MONTH||SIP (RS.)||NET ASSET VALUE (NAV)||UNITS (SIP/NAV)|
In the above table, you can see that lower the NAV, the more units you get. So when the market is high, you will profit only, as you will have more units. So you see there’s no right time to invest in the market.
If you already have some SIPs which are going on, it is strongly recommended that you don’t stop these SIPs looking at current fall in the equity markets owing majorly to global pandemic. Now you have understood that your SIPs will be advantageous in the long term and the reason being rupee cost averaging. So don’t stop your current SIPs and also you may start with new SIPs to have adequate corpus accumulated for children’s higher education.
All parents would want to give their children the best in life. Some may know how, some may not. But this can give you a head start. Everything is right in front of you, all you need to do is take that first step to provide a bright future for your child.
If you need any assistance, you can download the fintoo app and start investing for your child’s education.