How to Read a Mutual Fund's Performance

Return over which period?

A fund's return comes from the change in its NAV per unit: (value at the end ÷ value at the start) − 1. The same fund can show very different figures by period: 30 days, since the start of the year, or a full year. A short period can mislead, because one good or bad month says little about the fund over the long run.

Compare with a suitable benchmark

A figure like 12% on its own does not say whether the fund did well. For an equity fund, compare it with an index that suits its type of shares and its policy, over the same period. A money market or debt fund cannot be compared with a stock index. What matters is comparing like with like under the same return definition: if the fund's return includes distributions, the benchmark must be calculated comparably.

Distributions change the picture

Some funds pay part of their profit to unit holders, and when they do, the NAV per unit drops by roughly the amount paid. So a fund whose unit rose from 100 to 110 and then paid 5 per unit is worth about 105. The NAV-only return is 5%, but a holder earned 10% counting the distribution. FoudaLens calculates returns from NAV only, so keep that in mind for funds that distribute.

Return alone is not enough

Two funds can post the same annual return, one calmly and the other through violent swings. Volatility measures how much returns move up and down, and maximum drawdown measures the largest fall from a peak to a trough. That matters because whoever needs their money during a fall is the one who feels it.

Fees are part of performance

Management fees and operating expenses reduce the return that reaches the investor, and the effect of running costs is usually already inside the NAV. But there may be separate subscription or redemption fees under the prospectus, and you must include those when working out your own return.

Check yourself

Summary

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