How to Assess Your Mutual Fund Portfolio

Any seasoned investor knows the importance of portfolio management. Getting a portfolio analysis done from time to time is basic financial hygiene. Everyone wants to invest in quality assets but not everyone knows how to pick them.  This is why it is important to get expert help in analysing your mutual fund portfolio from time to time.

A lot of people have the misconception that once you invest in mutual funds your job is done. Simply investing in a set of mutual funds consistently doesn’t guarantee results in the long term. You have to pick the right funds and a fund that is right today may not be right for you next year. A fund can change its objective, the fund manager may leave or maybe the market itself is facing volatility. At such times, you need to get a Mutual Fund Portfolio Analysis.

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What Is A Mutual Fund Portfolio Analysis?

What we call Mutual Fund Portfolio Analysis is the process of assessing all your mutual fund investments. This helps ascertain if the mutual funds you have in your portfolio are good, bad, or terrible. This is done by looking at all the mutual funds you’ve invested in, comparing mutual funds within your portfolio with each other and with others in the category.

This way if your fund is not performing as well as other mutual funds in the category you can identify the poor performing fund. It also allows you to switch to a better fund, exit a fund before you lose more money, and in the best case scenario reaffirm that your portfolio is well balanced and will help achieve your financial goals.

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Why Should You Track Your Portfolio’s Performance?

Tracking your investments is crucial because you need to be aware of when you need to take action. Most of the time you will just check your portfolio performance to see your wealth grow and feel good about it. At other times you will see your portfolio drip due to market changes and become worried. In both situations, it is important to see if your portfolio is performing the way you expected.

If your portfolio is performing the way you expected it to perform when you first invested – all is well. Then you need to look at your portfolio from a different perspective. Are your objectives and goals still the same or have they changed? It is possible that you started investing in your 20’s and your portfolio objective was purely aggressive wealth creation. Now you’re in your late 50s eyeing retirement – in such a scenario, you will definitely want to get a mutual funds portfolio analysis done.

How To Evaluate A Mutual Fund’s Performance?

First things first, don’t evaluate your own mutual funds. Even if you’re an expert investor or wealth manager. You’re too close to this to view this objectively. It’s therefore essential that you get an expert wealth advisor to help you with this.

There are a number of factors that are taken into consideration when your mutual fund portfolio is being analysed. Here are some of the most important things that are done when your mutual fund portfolio is analysed:

• Risk-adjusted returns are looked at
• Your funds are compared to appropriate benchmarks
• Market & economic cycles are taken into account
• Multi-year performance of your fund and it’s category is considered
• Various ratios are applied to check your portfolio funds
• Your fund manager’s track record and movements are taken into account
• The quality of the stocks in each of your portfolio funds is checked
• The overall AUM and performance of the fund is checked

There are many other technical aspects to analysing your mutual fund portfolio. If you want to get your mutual fund portfolio analysed you can try our mutual fund self analysis tool.

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How Often Should You Evaluate The Fund Performance?

If you have a Wealth Coach, he or she will be perpetually analysing your portfolio. In such a scenario a full-fledged portfolio analysis is required less often and you could even do it once every few years. If you have been investing on your own and intend to continue to do so then it’s a good idea to get a portfolio analysis done at least once a year. This way you will be able to ensure your portfolio is in good shape and you are not losing money while trying to make more.

Which Financial Ratios Are Used For Technical Portfolio Analysis?

There are a lot of financial ratios and measures that financial advisors use to perform an in-depth portfolio analysis. While not all of them are used at the same time, given below are the most popular ones:

• Treynor Measure
• Sharpe Ratio
• Alpha
• Capture Ratios
• Expense Ratio
• Portfolio Allocation
• Jensen Measure

FAQs - Frequently Asked Questions

Q. How do mutual funds compare performance?

Ans. A mutual fund’s performance is compared based on risk-adjusted returns, fund performance, category performance, quality of stocks in the fund, the AUM, the fund manager’s track record l AMC comfort, and record among other factors.

Q. What do you mean by mutual fund portfolio evaluation?

Ans. Portfolio evaluation refers to the process of carefully analyzing all mutual funds in an investor’s portfolio. This is done to ensure the quality of funds and their performance is optimal.

Q. How do you evaluate mutual fund portfolio risk?

Ans. Mutual Fund Portfolio risk is evaluated using metrics like Portfolio Standard Deviation, VAR (Value at risk), Shortfall Risk & relative risk metrics such as the Sharpe Ratio & Treynor Ratio.

Q. How to make the perfect portfolio?

Ans. To build the Perfect Portfolio one should follow Cube Wealth’s 4 bucket philosophy for investing. This includes setting up an emergency fund and then investing for your short-term, medium-term, and long terms goals.

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Cube Wealth Investment Quotes

Do not put all your eggs in one basket. - Warren Buffet