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How to Compare Mutual Fund Performance

How to Compare Mutual Fund Performance

Mutual funds are one of the most dynamic ways of investing. With so many mutual funds in the market, comparisons are inevitable. So, in this article, we shall understand how to compare mutual fund performance.
Charlie S
Mutual funds have always been popular among all kinds of investors - small and wealthy, because of the relatively low risk associated with them as compared to direct stock investments. If you look at the mutual fund industry today, you will find that there are several companies in the market who are trying to attract customers. In this situation, a common investor might get totally confused with regards to where to invest his money. Investing money in the wrong mutual fund can be disastrous and can lead to heavy losses. So, it becomes extremely essential to distinguish between the best mutual fund performance and poor mutual fund performance. Given below are the parameters which you need to consider for knowing how to compare mutual fund performance.

Historical Returns
All those who wish to know how to compare mutual fund performance, should understand that studying the historical returns of the mutual funds is very essential. This is possible by checking the percentage return given by the fund, right from its inception to date. For making sure that the fund is a consistent performer, you can also take historical data of the past one year, two years, three years, or even the last five years. When you keep charts of two distinct mutual funds against each other, you will immediately realize which one has generated more wealth for its investors. Measuring absolute returns, which give you the gains of a fund in a particular period of time, is a good technique for selecting the best mutual funds.

Benchmark Returns
Considering the benchmark returns is also a good way of studying mutual fund performance. Now, you may wish to know what is meant by benchmark. Benchmark is nothing but an index, which is considered as a standard by the mutual fund provider, and its aim is to give its investors returns at least equivalent to those of the benchmark. Ideally, a good mutual fund company having talented fund managers would look to surpass the benchmark returns. So, as an investor, you should look at a fund which has surpassed the benchmark returns consistently, as against that fund which is under performing its benchmark. You also need to consider the time in which funds have given returns to their investors. Comparison between mutual funds should be made for the same time period.

Risk Management
Investor wealth can be multiplied only if the fund managers are successful in managing risks. Since mutual funds invest investor money in stocks, returns will be negative in times of a market crash. So, the fund manager has to do the balancing act by earning more in the boom time and adding stocks that would be least affected by the downturn. So, invest only in funds which have a risk protection to get maximum returns.

Mutual Fund Cost
Investors can gain the most if there are no added expenses for signing up with mutual fund companies. You should look at what are the service / maintenance charges which funds are charging. Choose the fund offering its services without any hidden costs or exorbitant charges.

High Yield Mutual Funds
  • Principal High Yield A
  • Aegis High Yield
  • Rydex High Yield Strategy A
  • UBS PACE High Yield P
  • ING Pioneer High Yield I
  • Templeton Global Bond advantage
  • Vanguard Wellington
  • Fidelity Contrafund
This was all about how you can compare mutual fund performance in today's market. Hopefully, you will be able to choose the right fund for yourself after this explanation. All the best and think smartly!

DISCLAIMER: This article is just for reference purposes and does not recommend any mutual fund investments.