Mutual fund performance varies from day to day. Over a reasonable period, a quarter, half-year or better still a year, a mutual fund's performance should be comapred with its peers and the category average or the benchmark index.

Those investors who are more accustomed to bank or other fixed deposits, the wrong belief is that the performance over a short period will extrapolate or similarly extend over a long period. But with mutual funds, it does not happen that way. Even in income funds or debt funds, the value of investments change not because of any transaction as such but because the market expectation of rate of interest changes. For example on a debenture or bond which pays 10% interest rate, if subsequently, the expected rate of interest becomes 8% Rs 100 investment in the bond or debenture is now worth more because it pays 10% interest- so your Rs 100 bond will get valued at 10/8 times Rs 100 or Rs 125 since Rs 125 pays Rs 10 at the expected 8% interest rate. Similarly if there is a rise in the expected interest rate the value of debenture will fall. However on redemption you get back Rs 100 so there is no loss in your money really if you hold on till the redemption date.

When it comes to equity, this day to day change in value is well understood, but it is not easy for unaccustomed investors to appreciate the small changes in value on income funds from day to day.

Mutual fund schemes have an investment mandate that it has declared before the scheme starts selling units. Like Fund X will invest solely in equity or it will invest up to 20% in equity or whatever. These investment guidelines can be much more detailed as to how much will be invested in gilts or in small cap or mid cap equity etc. So funds vary by the way they are planned.

For your type of fund, there would be a benchmark index the fund has declared to compare its performance against. This depends on its investment plans..

Mutual fund performance comaparison requires finding the benchmark that is relevant and also the group of similar schemes. In this regard, you must note that the mere nomenclature or name of a fund being actually just a label may be totally misleading. When similar funds are only compared you will get the correct picture. So it is when you compare fund performance with the benchmark index that you get the real picture.

It is common to find the best 5 or 10 funds today to be entirely different from the best 5 or 10 funds on another day. Fund performance comparison can be that much fluid. So it is best not to be overly worried or be carried away by best performing fund at any particular time. It is enough if your fund is doing reasonably well in the group. Worst performance may however require some investigation and follow up over a period. Mutual Fund performance indicator is obtained on comparison with really similar schemes and the relevant benchmark.

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