10 Key Steps To Analyse Mutual Fund Performance In 2025

Investing in mutual funds is one of the best options for growing wealth and beating inflation in the modern day. However, before diving into mutual fund investments, it’s crucial to analyze the funds to ensure they align with your financial goals. Mutual fund analysis is the process of understanding how mutual funds perform, their risk factors, and whether they align with your financial goals.

This guide simplifies the process, breaking it down into easy-to-follow steps for mutual fund analysis.

What Is Mutual Fund Analysis?

Mutual fund analysis is the process of evaluating a fund’s past and present performance, investment strategy, risk profile, and other metrics to decide if it aligns with your financial objectives. Key aspects include:

• The assessment of the past performance of the fund.
• Comparison with the benchmark and peers.
• Key metrics such as expense ratios, alpha, beta, and Sharpe ratio.
• All these elements help investors in making informed decisions and avoiding risks.

Why Measure the Performance of a Mutual Fund?

There are several reasons why analyzing a mutual fund needs to be done:

Track Investment Goals:

Mutual fund analysis, such as regular measurement of performance, ensures that your investments are on track to meet your investment objectives.

Compare Against Benchmarks:

A mutual fund’s performance should typically surpass its benchmark index. This assists you in assessing the effectiveness of the fund manager.

Understand Risk-Return Tradeoff:

The measurement of performance reveals whether the returns justify the level of risk taken.

Identify Underperforming Funds:

Spotting underperformers allows for timely portfolio adjustments or rebalancing.

Optimize Portfolio:

Tracking for optimum efficiency and getting well in line with the risk appetite that rebalances the portfolio helps assist in it.

Investment through mutual funds is always considered for a certain time frame. You might adjust it to get the best possible outcome.

Steps to Analyze Mutual Funds

These are the steps undertaken for analyzing mutual funds:

1. Track the benchmark index

Every mutual fund is benchmarked against an index (e.g., Nifty 50 or S&P 500). Compare the fund’s returns to its benchmark to see if it has outperformed.

2. Analyze Mutual Fund Historical Returns

Review the fund’s returns over different time periods (1 year, 3 years, 5 years). A consistent performance over the long term is a positive sign.

3. Examine Risk Ratios

• Standard Deviation: Measures the fund’s volatility. Lower values indicate stable returns.
• Beta: It reflects how responsive the fund is to market fluctuations. A beta of 1 implies that the fund keeps pace with the market.
• Alpha: Alpha refers to the returns more than that of its benchmark that is generated by the fund.

4. Review the Expense Ratio

The expense ratio is the annual fee for managing that is collected by the fund. The smaller the ratio, the higher the net returns to the investor.

5. Review the Portfolio Composition

Analyze the holding sectors and stocks so as to realize the diversification of your fund and their risks.

6. Evaluate Track Record of the Fund Manager

The expertise of a fund manager is crucial because they represent the fund; the ability to track the market ensures an experienced manager can negotiate changes.

7. Assess the Size of the Fund

The bigger funds are more stable but tend to have a hard time making high returns since large movements of capital are difficult. Smaller funds have higher returns and, therefore, involve more risk.

8. Know Exit Load and Other Charges

Exit loads refer to the charges paid in cases where you exit from the fund before the completion of a specific time frame. These charges will always affect your potential return.

9. Assess the Rating and Analyst Report

Third-party ratings and reports from financial analysts would help in understanding the major strengths and weaknesses of the fund.

10. Consistency of Dividends (for Dividend Funds)

Ensure that dividend-oriented funds have a track record of regular dividend payouts.

How to Invest in Mutual Funds via FundsIndia

Although you can analyze mutual funds on your own, investment platforms like FundsIndia offer a much smoother experience. With dedicated investment coaches supported by a robust research team, FundsIndia provides holistic support for investors. Here’s how you can get started:

1. Sign Up: Create an account on FundsIndia’s website or mobile app.
2. Complete KYC: Upload PAN and address proof for Know Your Customer verification.
3. Set Goals: Define financial goals (e.g., retirement, home purchase).
4. Select Funds: Use FundsIndia’s research and recommendations to choose suitable funds.
5. Choose Investment Mode: Opt for a lump sum or Systematic Investment Plan (SIP).
6. Monitor Portfolio: Use FundsIndia’s tools to track and optimize your investments.

FundsIndia not only simplifies the process but also empowers you with expert guidance and research insights, ensuring your investment journey is smooth and rewarding.

Conclusion

The most important step of investing in mutual funds is the MF analysis before you can begin the investment. You can maximize the return with minimal risk by understanding key metrics, comparing performance, and making use of platforms like FundsIndia. You ensure that your investments do not go out of the context of your financial goals by regular monitoring and adjustment.

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