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How to evaluate a mutual fund's performance?

Dhirendra Kumar discusses the parameters to look at while choosing a fund

Which are the most important ratios while checking the performance of mutual funds - both equity and debt?
- Arun Bansal

There are many ratios, but I'm not a great believer of ratios. So I'm telling you things which are not ratios. When looking for a fund, look for three things. Look for a fund which has a performance over a full market cycle. I like a fund which actually falls less than its benchmark in a falling market and rises little more in a rising market. This means that here is a fund which will not be extraordinary but if it does little better in a falling market and does a little better in a rising market, overall it will do exceptionally well. The other thing is, make sure that the fund manager who is responsible for producing these returns is still there. The third thing which I'm always looking at is the general portfolio. See if the portfolio is diversified enough. If yes, then I would say that all the returns have not been a matter of accident, it has been done by somebody's wise selection of securities in the portfolio and building it in a manner which was opportune. This is because there are situations when a fund manager goes right with a specific sector or a specific stock and that could be resulting from a very concentrated portfolio. So if all this has been achieved with a diversified portfolio, the fund manager remains there and the fund has done well in a falling as well as the rising market, it's a great fund.

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