Equity mutual fund performance evaluation: Methods for evaluating the performance of equity mutual funds

Investing your money in an equity fund can potentially help you achieve higher returns, especially when compared to other types of investments. However, buying into an equity fund is just the first step. It’s important to note that investing in equity funds carries inherent risk, and it’s essential to regularly monitor the performance of the fund in which you’re invested.

Evaluating the performance of your equity fund is equally important as it helps you to track the progress of your investment and make informed decisions. This is especially true in the case of equity funds where the majority of investments are made in the stock market. But how do you go about evaluating the performance of equity mutual funds? Read on to find out.

What are equity mutual funds?

Mutual funds that invest primarily in the stock market are known as equity mutual funds. In order to generate capital appreciation for the investors, the fund manager invests the capital in a diversified portfolio of stocks from various industries and companies.

Long-term investors who are willing to assume greater risks in exchange for potentially higher returns could consider investing in equity mutual funds. These funds are actively managed by professional fund managers who continuously analyse the market and make informed investment decisions on the investors’ behalf.

There are different types of equity mutual funds, such as large-cap, mid-cap, and small-cap funds, based on the market capitalization of the companies they invest in. In addition, there are sector-specific equity funds that invest in industries like technology, healthcare, and infrastructure.

Methods to evaluate the performance of an equity fund

Returns: One of the primary ways to evaluate the performance of an equity fund is to look at its returns. Investors can compare the fund’s returns against its benchmark index to determine if it is outperforming or underperforming. It is important to consider the time frame for which the returns are being evaluated, as short-term fluctuations can often be misleading.

Risk-adjusted returns: Simply looking at returns can be insufficient, as it does not take into account the amount of risk taken to achieve those returns. Therefore, investors can evaluate the risk-adjusted returns of the equity fund by looking at metrics such as Sharpe ratio or Sortino ratio. These ratios help determine if the fund is generating returns that are commensurate with the amount of risk taken.

Expense ratio: Another important aspect to consider when evaluating an equity fund is its expense ratio. It is important to compare the expense ratio of the fund against its peers to determine if it is charging higher fees. Higher fees can eat into the returns generated by the fund, which can impact the overall performance.

Fund manager tenure: The performance of an equity fund can often be attributed to the fund manager. Investors can evaluate the tenure of the fund manager to determine if the fund has a consistent track record of performance. A long-tenured fund manager who has consistently outperformed the benchmark index can be a positive sign for the fund.

Portfolio composition: Lastly, investors can evaluate the portfolio composition of the equity fund to determine if it aligns with their investment objectives. It is important to look at the sectors and stocks that the fund is investing in to determine if they align with the investor’s risk tolerance and investment goals.


Investing in equity mutual funds can potentially help investors achieve higher returns, but it’s equally important to evaluate the performance of the fund. Use the above methods to ensure your get the best out of your investment options.