Evaluating Returns: Performance Analysis of Large and Mid Cap Funds

An allocation to large and mid cap funds has the potential to drive significant portfolio growth over time. However, it is essential to evaluate the performance of these funds regularly to ensure that they align with your evolving life situation and the ever-changing market conditions.

In this article, we will discuss the importance to assess the performance of large and mid cap funds, the key factors to consider when evaluating returns, and how investors can use large and mid cap fund performance analysis to make informed portfolio decisions.

• Table of contents

1. Understand the analysis and returns in large and mid cap fund
2. Why is it important to evaluate the performance of large and mid cap funds?
3. Evaluating returns of large and mid cap funds
4. How can investors use performance analysis to make informed decisions?
5. FAQs

Understand the analysis and returns in large and mid cap fund

Large and mid cap funds are equity funds that invest primarily in the stocks of companies with large and medium market capitalisations. These companies are ranked from 1st to 250th by market cap in India, thus they comprise the most well established and proven companies of the Indian industrial landscape. Through investment in these companies, large and mid cap funds aim to leverage the relatively stable growth potential offered by large cap stocks and the potential of substantial expansion offered by mid caps over a long horizon.

The performance of large and mid cap funds is evaluated based on their returns, which are calculated as the change in the fund's net asset value (NAV) over a specific period. The returns are usually benchmarked to a relevant index that allows for an accurate comparison of the fund performance in relation to the broader market.

Why is it important to evaluate the performance of large and mid cap funds?

Performance analysis and returns in large and mid cap funds are essential for several reasons. Evaluating performance and returns allows investors to determine whether their investments are on track to help them achieve their objectives. Secondly, investors can make informed portfolio decisions by comparing their fund’s performance against the benchmark and also with other funds. Lastly, it helps investors identify any potential risks associated with their investments.

Evaluating returns of large and mid cap funds

There are various ways to assess the performance of large and mid cap funds:

• Annualised returns: Average annual return of a fund over a specified period. It helps investors to gauge performance over time and compare it against benchmarks and peer funds.
• Benchmark comparison: Comparing fund returns against the relevant benchmark, such as BSE LargeMidCap or Nifty LargeMidCap 250, can facilitate an accurate assessment of performance.
• Risk-adjusted returns: Risk-adjusted returns factor in the level of risk taken by a fund to generate returns. Some tools to assess risk-adjusted returns include Sharpe ratio and Sortino ratio. A fund with higher risk-adjusted returns is preferable as it generates more returns for a similar amount of risk taken.
• Rolling returns: Assessing rolling returns can yield insights into consistency and variability in fund performance allowing investors to trends and patterns across different market conditions.

Additionally, always consider the fund expenses when computing performance as they can significantly eat into the overall returns.

How can investors use performance analysis to make informed decisions?

Investors can use performance analysis to make informed investment decisions by comparing the returns of their funds with the benchmark and other similar funds in the market. They can also use performance analysis to identify any potential risks associated with their investments. For example, if a fund has consistently underperformed its benchmark, it may indicate that the fund is not well-managed or that there are underlying risks associated with the fund's portfolio.

Conclusion
Evaluating the performance of large and mid cap funds is essential for investors who want to generate long-term wealth. By considering the key factors discussed in this article, investors can make informed investment decisions that align with their investment goals.

FAQs

How often should I evaluate the performance of my large and mid cap funds?
Investors should evaluate the performance of their large and mid cap funds at least once a year. However, it is recommended that investors evaluate their funds more frequently, such as quarterly or semi-annually.

What benchmarks should I use to compare the returns of my funds?
Investors can use broader benchmarks such as the Nifty 50, Nifty Midcap 100, or BSE 500 or more specific indices such as BSE LargeMidCap or Nifty LargeMidCap 250 to compare the returns of their funds.

How do I determine if a fund's performance is above or below average?
Comparing a fund’s performance against peer funds or benchmark indices can provide a standard for comparison and help investors determine whether their investment is overperforming or underperforming.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.