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75. '' Beside risk and return , there are number of factors that affects the Fund's performance .'' Explain.
In the contemporary world , many fast mushrooming financial institutions are offering new products and services to the investors .They entice them to invest their funds by providing incentives and facilities in terms of flexible investment options and withdrawal paln. Mutual Fund come into this category .The Mutual Fund Industry has grown up in leaps and bounds , particularly during the last two decades of the 20th Century . Moreover, the entry of the private funds (since 1993) has injected a sense of competition and the Industry has been witnessing a structural transformation from a public sector monopoly to monopolistic industry . A proper evaluation is required to measure a Fund's performance . It will remove the confusion and help investors to decide the level of investment in various Mutual Fund schemes, about their financial performance over a period of time , and the risk associated with their investment, so as to avoid loss and maximize the returns. Beside risk and return , there are number of factors that affect the Fund's performance.
Ans: The factors that affects the fund performance are discussed below:
Management Cost: The costs of the Fund Management process, which includes marketing and initial costs , are charged at the time of entry itslef in the form of load .Then, there are the annual asset management fee and operating expenses. The performance of a scheme, net of these expenses may lead to a relatively lower performance vis-a-vis the index stocks .The costs involved in Mutual Fund can be broadly classified into two categories .They are entry/exit load and expense ratio.
Portfolio Rebalancing Cost: Portfolio rebalancing cost depends on the frequency of rebalancing . The extent to which the portfolio changes is a function of the style of the individual Fund Manager, i.e., whether he is a buy-and -hold type of Manager or one who aggressively churns the Fund. Such portfolio changes have associated costs of brokerage custody fees, registration fees, etc., which lowers the return from the portfolio.