Define Portfolio Evaluation and Mutual Fund

Portfolio manager evaluates his portfolio performance and identifies the sources of strength and weakness. The evaluation of the portfolio provides a feed back about the performance to evolve better management strategy. Even though evaluation of portfolio performance is considered to be the last stage of investment process, it is a continuous process. The managed portfolios are commonly known as mutual funds. Various managed portfolios are prevalent in the capital market. Their relative merits of return and risk criteria have to be evaluated.

Mutual Fund

Mutual fund is an investment vehicle that pools together funds from investors to purchase stocks, bonds or other securities. An investor can participate in the mutual fund by buying the units of the fund. Each unit is backed by a diversified pool of assets, where the funds have been invested. A closed-end fund has a fixed number of units outstanding. It is open for a specific period. During that period investors can buy it. The initial offer period is terminated at the end of the pre-determined period. The closed-end schemes are listed in the stock exchanges. The investor can trade the units in the stock markets just like other securities. The prices may be either quoted at a premium or discount.

In the open-end schemes, units are sold and bought continuously. The investors can directly approach the fund managers to buy or sell the units. The price of the unit is based on the net asset value of the particular scheme. The net asset value of the fund is the value of the underlying securities of the scheme. The net asset value is calculated on a daily or weekly basis.

The gain or loss made by the mutual fund is passed on to the investors after deducting the administrative expenses and investment management fees, The gains are distributed to the unit holder in the form of dividend or reinvested by the fund to generate further gains.

The mutual fund may be with or without a load factor. A commission or charge paid by the investors while purchasing or selling the mutual fund is known as load factor. Front-end load is charged when units are sold by the funds and back-end load is charged when the units are repurchased by the funds. Front-end load is charged when units are sold by the funds and back-end load is charged when the units are repurchased by the funds. The front-end load factor reduces the units when 253 the investor buys it and the back-end load reduces the investor’s proceeds when he sells the units. Generally, the load factor ranges between 1 and 6 per cent of the net asset value. Sometimes, the fund may not charge both the loads.