Evaluating A Mutual Fund's Efficiency Through Its Performance
Investing in a mutual funds is one of the safest ways to invest offshore. That doesn't make it a foolproof move though, and investors must take the utmost care in selecting their mutual fund, based on the mutual fund performance. This includes looking at a number of elements - one of which is the mutual fund performance - to evaluate the fund's efficiency. I cannot stress enough the importance and significance of taking a look at all the fund's figures, specially the mutual fund performance. This is the one major pitfall most new investors encounter: I would say that over 99% of all new investors look for a mutual fund based on its performance percentage alone.
In most cases, the top performing mutual funds for the year were invested in some new technology or industry that caused the fund to do exceptionally well. One example of such a mutual fund was the Essex High Technology Fund, which returned 1155.92% for three years; however, at the time of writing this article, that fund was in the negatives. That might be acceptable if you had have invested in the fund over the last four years, made a great return and only lost 10-15% of it, but it might be a bit less easy to swallow if you had invested in the fund purely based on the 1155.92% past return, and then lost 10-15% of your investment. The point that I am trying to make is that although it is important to know how the mutual fund has performed in the past, it is equally - if not more - important not to base your investment decision on the mutual fund's past performance alone. Think of a mutual fund as a wave where you could invest just as the wave was starting to form and ride it all the way or get on at the top of the wave and ride it all the way down, or get it when it crashes on the shore and is on its way back. For my money, I would rather get the wave when it's forming and ride until it peaks. The best way I have found to analyze the mutual fund performance is to take note of the fund's past performance, but also monitor the year to date of the fund for three to six months before investing. In doing so, an idea of how the mutual fund is performing should develop: it's like watching that wave starting to build and picking the appropriate time for entry for the best possible return on your money.
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