When investing in Mutual Funds, it’s important to do thorough research beyond just looking at the Fund Fact Sheet. Here are some important things to consider when evaluating the performance of a Mutual Fund:
1. Compare Similar Mutual Fund Products
Comparing the performance of mutual funds within similar categories helps in identifying products with better performance. For example, compare the performance of AAA Money Market Fund with BBB Money Market Fund, rather than with CCC Equity Fund, which has a distinctly different product composition. This ensures a more accurate comparison.
In Welma myBCA, you can use the Compare feature to compare the performance of up to 3 Mutual Fund products at once in the last 5 years by following these steps:
- Log in to myBCA
- Choose Welma
- Choose Mutual Fund
- Select a Mutual Fund product
- Choose Compare
2. Factor in Dividends
Some Mutual Funds distribute dividends at regular intervals (e.g. 1 month, 3 months, or 6 months). Dividend distribution can have an impact on the performance of the Mutual Fund. When dividends are distributed, the Net Asset Value (NAV) of the Mutual Fund will decrease by the value of the dividend distribution. This may distort the performance of the Mutual Fund and make it seem less competitive than other similar Mutual Funds. Therefore, it’s important to consider the dividend distribution factor when evaluating the fund’s performance. For information on products that pay dividends and their total return, please click here.
3. Understanding the Factors Affecting Mutual Fund Performance
Each type of Mutual Fund is affected by different factors that influence its performance. For example:
- Money Market Funds (mainly consisting of deposits) are influenced by the BI rate. A higher BI rate leads to a higher deposit interest rate, which in turn improves the potential return of the Money Market Fund.
- Fixed-Income Funds (mainly consisting of bonds) are affected by inflation and interest rates. These funds benefit when interest rates fall because bond prices have the potential to rise, leading to potential capital gains.
- Equity Funds (mostly comprised of stocks) are strongly governed by company fundamentals. An increase in a company’s profit often correlates with a rise in its share price.
4. Analyzing Market Condition
When analyzing performance, it is important to note that past performance doesn’t always predict future performance. Therefore, current market conditions should be considered to determine the outlook for future Mutual Fund performance. You can stay informed about market conditions by reading the following publications:
- BCA Weekly Market Overview which discusses relevant market conditions of the previous week and is published weekly.
- BCA House View which provides an analysis of macroeconomic conditions and BCA’s view on the potential performance of asset classes in the next 3 months and is published monthly.
Both publications can be accessed through the Wealth Insight feature on the Notification Tab on myBCA by following these steps:
- Log in to myBCA
- Select Notification
- Select Wealth Insight
- Select Market Insight
- Choose either the BCA Weekly Market Overview or BCA House View publication
By reading the Fund Fact Sheet and following the steps mentioned above, you will gain a better understanding of which Mutual Fund products are suitable for your investment goals. Are you feeling more confident about investing? Let’s invest using the Welma feature on myBCA.
For those who do not have myBCA, you can download it from the App Store or Play Store!