Tracking Your Mutual Fund Investments
Tracking returns helps you assess the performance of your investments and make informed decisions.
BY DHIRENDRA KUMAR
Imagine embarking on a long highway journey with your family, driving in your car towards your desired destination. However, you have no odometer in the car, no and no GPS to guide you. Without these essential tools, you’d be left wondering if you’re on the right track, how far you’ve come, and how much further you need to go. Investing in mutual funds without tracking your investments is quite similar to this scenario.
Investing in mutual funds is an excellent way to grow your wealth over time. However, simply investing is not enough; it’s crucial to track your investments regularly to ensure they align with your financial goals. In this column, we’ll discuss the importance of tracking your mutual fund investments, what to track, and why.
The first step is to understand your mutual fund portfolio. For a minute, let’s just review our earlier discussion of the types of mutual funds that we have. Equity funds invest in stocks and are further categorised into large-cap, mid-cap, small-cap, and sector funds based on the size and sector of the companies they invest in. Debt funds invest in fixed-income securities like bonds and government securities. Hybrid funds invest in a mix of equity and debt, with balanced funds and arbitrage funds being popular choices.
As we have seen, diversification is key when investing in mutual funds. Spreading your investments across different fund categories and schemes helps reduce overall portfolio risk. Asset allocation, or deciding the proportion of equity and debt funds in your portfolio, should align with your investment goals and risk tolerance.
Keeping all this in mind, let’s see what all we should track.
Net Asset Value (NAV): The NAV represents the per-unit value of a mutual fund scheme. It is the price at which you buy or sell units of a fund, subject to exit load, if any. Tracking the NAV helps you understand the performance of your investments over time.
Returns: Returns are the profits or losses generated by your mutual fund investments. Absolute returns represent the total return earned over a specific period on an absolute basis, the annualised returns represent the returns generated over a period of time on an annualised basis. Tracking returns helps you assess the performance of your investments and make informed decisions.
Benchmarking Performance: Comparing your mutual fund returns to relevant benchmarks is essential to evaluate their performance as compared to the relevant market returns. Bench-marks are market indices that represent the performance of a particular market segment. For example, the Nifty 50 and BSE Sensex are common benchmarks for large-cap equity funds.
Choose a benchmark that closely resembles your mutual fund’s in-vestment objective and portfolio composition. Consistently underperforming the benchmark may indicate that it’s time to review your investment strategy.
So how do you track all this? Fortunately, tracking your mutual fund investments has become easier with the availability of online portals and apps. I don’t want to make specific recommendations so just search for something like ‘mutual fund research and tracking’ and take a look at the first 15-20 entries. I’m sure you will find something that you like. Many of these platforms provide a consolidated view of your investments, allowing you to track your portfolio’s performance, returns, and asset allocation.
Additionally, mutual fund factsheets and annual reports, available on the respective fund house websites, provide detailed information on the fund’s performance, holdings, and key metrics. Tracking your mutual fund investments is crucial to ensure they align with your financial goals. Understanding your portfolio’s composition, diversification, and asset allocation is the first step. Regularly monitoring key metrics like NAV and returns, and benchmarking your fund’s performance against relevant indices, will help you make informed investment decisions.
By leveraging the various tracking tools and resources available, you can effectively monitor your mutual fund investments and take control of your financial future. Remember, regular tracking and reviewing your portfolio is as important as making the right investment choices.
Dhirendra Kumar is India’s foremost expert on mutual funds and personal finance. He is the founder and CEO of Value Research, India’s leading source of investment information and research since 1990.
Disclaimer: The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not an investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instruments.
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