Mutual funds are the investment vehicles that pool money from a large number of investors to invest in a mix of stocks, bonds, or other securities. Essentially, investors who buy mutual fund shares own a portion of the fund’s portfolio and stand to benefit from the returns generated by the fund’s investments. Similarly, any losses from those investments are divided among the investors in proportion to their share in the fund.
Mutual funds offer a range of advantages to investors. For one, they provide access to a diverse portfolio of securities managed by expert investors. Investors may not have the resources or expertise to research individual stocks or bonds to construct a diversified portfolio. Additionally, mutual funds offer high liquidity since investors can buy and sell shares at any time.
One of the biggest benefits of investing in mutual funds is the potential to generate higher returns. Mutual fund managers work to maximize returns while minimizing risks. On the downside, fees and expenses associated with mutual funds can eat into returns. As such, it is important to carefully evaluate the fees involved compared to the expected returns before investing in any mutual fund.
Investing in mutual funds is a popular option to diversify your portfolio and gain exposure to a variety of stocks, bonds, and other securities. It is a great tool for long-term wealth creation. Once you have invested in mutual funds, you need to track their performance to ensure that they are meeting your goals. In this article, we will discuss the various metrics that you can use to track your mutual fund performance and the options available to do so.
Understanding Mutual Funds
A mutual fund is an investment vehicle that pools money from multiple investors to invest in a portfolio of stocks, bonds, and other assets. The investments are managed by professional fund managers who allocate the assets to maximize returns. By investing in mutual funds, individual investors can gain access to a wide range of securities that would be difficult to buy and manage on their own. Mutual funds offer a range of benefits such as diversification, professional fund management, liquidity, and flexibility.
Investing in Mutual Funds
To invest in mutual funds, you need to have a clear investment objective and risk tolerance. Mutual funds come in many categories such as equity, debt, hybrid, or sector-specific. Equity funds invest in stocks, while debt funds invest in fixed-income securities such as bonds. Hybrid funds invest in a mix of both, while sector-specific funds focus on specific sectors such as technology or healthcare. Based on your investment objective and risk tolerance, you can choose the appropriate mutual fund category.
There are various types of mutual funds, classified based on the types of securities they invest in, geographic focus, specific industries, or other factors. Here are a few types of mutual funds:
Equity Mutual Funds: As the name suggests, these funds invest in stocks. Based on their investment objective, equity funds can be further divided into large-cap, mid-cap, small-cap funds, focused funds, and sectoral or thematic funds, among others.
Debt Mutual Funds: These funds invest in fixed income securities like bonds, treasury bills, and corporate debt.
Hybrid Mutual Funds: These funds invest in a mix of stocks and bonds, seeking to balance the risks and returns associated with each.
Index Funds: These funds aim to mirror the performance of a specific index such as the Nifty 50 or S&P 500 and invest in the same securities in the same proportion as the corresponding index.
Benefits of Mutual Funds
One of the key benefits of investing in mutual funds is diversification. By investing in a portfolio of stocks or bonds, you can spread your risk across multiple securities. This helps to reduce the impact of market volatility on your portfolio. Mutual funds are also managed by professionals who have the expertise to analyze and pick stocks that can give good returns in the long run. Mutual funds also offer flexibility in terms of investment amounts, withdrawal options, and reinvestment options.
Options to Track Mutual Fund Performance
There are several metrics that you can use to track your mutual fund performance. These include absolute return, relative return, volatility, risk-adjusted return, and benchmark return.
Absolute return gives you the total return generated by a mutual fund, which includes capital gains and dividends. This metric is useful to know the overall return on your investment.
Relative return compares the mutual fund’s return with the benchmark return. Benchmark return is the average return generated by similar funds in the category. This metric helps to assess the fund’s performance against its peers.
Volatility measures the fluctuations in a mutual fund’s returns. High volatility means that the mutual fund’s returns are fluctuating widely, while low volatility means that the returns are stable over time.
Risk-adjusted return is a measure of risk that provides investors with a better understanding of how much risk is involved in generating the return. It considers the risk of the mutual fund’s investments and calculates the return adjusted for risk.
Benchmark return is the average of the returns generated by similar funds in the same category. This metric provides investors with a basis for comparison with other mutual funds in the same category.
Options of Mutual Funds Apps Available
- The Bajaj Finserv app is an excellent option for tracking your mutual fund performance. It is a one-stop shop for all your investment needs. With the app, you can invest in mutual funds, track performance, and make informed investment decisions. The app also provides a wide range of research material to help investors make informed decisions. You can track the performance of mutual funds in real time and monitor your portfolio for any changes. The app also offers a personalized investment portfolio based on your investment goals and risk profile.
- Moneycontrol App: This popular finance app offers a range of research materials, investment news, tracking tools for mutual funds, and a user-friendly interface.
- Groww App: This app is an easy-to-use mutual fund investment app that allows commission-free investing. Investors can also track performance, monitor their portfolio, learn about investments, and seek advice from financial experts.
- ET Money App: The app offers personalized investment portfolios based on your investment goals and risk appetite, and smart investment options like tax-saving investments and SIPs.
Investing in mutual funds is a great way to diversify your portfolio and generate long-term wealth. Once you have invested in mutual funds, it is crucial to track their performance to ensure that they are meeting your goals. By using various metrics such as absolute return, relative return, volatility, risk-adjusted return, and benchmark return, you can assess the performance of your mutual funds.