Getty ImagesSaurabh Sharma has recently started investing in mutual funds and hopes to see his money grow. He regularly tracks NAVs on financial websites, but gets anxious when he notices a dip. Adding to his confusion, the returns shown in the fund's fact sheet often differ from those on his online investment accounts on transaction / investment portals. This ‘mismatch’ (holding period vs publicly published returns) makes him question whether the numbers are accurate. He is not sure if he's on the right track.
Saurabh Sharma must appreciate that scheme performance must be matched with the recommended time horizons. Liquid fund returns are measured over shorter time periods and annualised for comparison across products or time periods. However, tracking equity fund NAVs too frequently or trying to annualise them can lead to bizarre results. In order to avoid disappointment over short term volatility, they must be evaluated over longer horizons of at least over three years. Monitoring returns daily assumes a straight, upward trajectory, which is rarely the case.
Fact sheet returns and returns shown on financial websites or platforms are declared every month-end as per Sebi guidelines, using point-to-point returns for the last three one-year periods. These figures may not match the exact holding period for Sharma or any other investor. They represent standardised returns for standard time frames, assuming an investor entered at the start point and exited at the end point. Since Sharma may have invested at different times and possibly added to his investments along the way, his actual returns would vary, based on the amount and timing of each investment.
Sharma should understand that evaluating a fund and evaluating his own investments are two different things. If the objective is to see whether he should stay invested, he should focus on judging the fund. He must compare its performance with similar funds in its category, at regular intervals. If its performance remains below category average or benchmark index consistently, while most of its peers are doing well, then it might be a strong reason for Sharma to consider switching his holding. If his fund is doing fine, he will benefit from staying invested.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Saurabh Sharma must appreciate that scheme performance must be matched with the recommended time horizons. Liquid fund returns are measured over shorter time periods and annualised for comparison across products or time periods. However, tracking equity fund NAVs too frequently or trying to annualise them can lead to bizarre results. In order to avoid disappointment over short term volatility, they must be evaluated over longer horizons of at least over three years. Monitoring returns daily assumes a straight, upward trajectory, which is rarely the case.
Fact sheet returns and returns shown on financial websites or platforms are declared every month-end as per Sebi guidelines, using point-to-point returns for the last three one-year periods. These figures may not match the exact holding period for Sharma or any other investor. They represent standardised returns for standard time frames, assuming an investor entered at the start point and exited at the end point. Since Sharma may have invested at different times and possibly added to his investments along the way, his actual returns would vary, based on the amount and timing of each investment.
Sharma should understand that evaluating a fund and evaluating his own investments are two different things. If the objective is to see whether he should stay invested, he should focus on judging the fund. He must compare its performance with similar funds in its category, at regular intervals. If its performance remains below category average or benchmark index consistently, while most of its peers are doing well, then it might be a strong reason for Sharma to consider switching his holding. If his fund is doing fine, he will benefit from staying invested.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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