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How do I Evaluate Equity Fund Performance?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 11 September 2018
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    Conjecture Corporation
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Evaluating equity fund performance demands that investors do extensive research on a fund's percentage yield compared to other funds. Investors should be concerned with a fund's performance not only in the short term but also over an extended period of time. In addition, evaluating equity fund performance involves figuring out how much risk the fund manager is taking with the capital invested. Extra management fees tacked on to certain funds and the skill of fund managers should also be considered by investors when doing an evaluation.

Equity funds are mutual funds which focus their investments on equities, which are another name for stocks. Investors can get excellent portfolio diversification from equity funds, since a fund generally spreads its capital out among many different stocks. Since the value of these funds is not determined by market prices but rather by the assets which they hold, investors must have a way to judge one fund against another. The proper evaluation of equity fund performance can have a huge bearing on overall investment success.

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To evaluate equity fund performance, investors should study to see how the capital invested in funds has increased over time. This is generally expressed as a percentage. For example, if an investor originally puts $1,000 US Dollars (USD) into a fund and that amount grows in a year by a total of $100 USD, the fund's percentage gain is $100 USD divided by $1,000 USD, or 10 percent. These figures are usually available in the prospectus offered to investors by an equity fund or through various investment websites.

It is important to understand that equity fund performance can only be properly judged over a significant period of time. Some funds may have one good year but then fall back down the next. Evaluating the gain of a fund over several years can give investors an idea about its consistency. Certain investors also may prefer to sacrifice the possibility of significant gains if it means that there will be less risk involved. For that reason, investors should understand the risk levels associated with specific equity funds.

Other factors can affect equity fund performance. Most funds charge fees that are used to help pay off the fund manager. Obviously, the funds that charge the lowest fees tend to return more capital to their investors. In addition, the talent of the fund manager in picking stocks will have a great impact on a fund's performance. Investors should be aware of the track record of the fund manager if the fund in question is a relatively new one.

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