How do you analyze investment funds?
The best way to perform this analysis is to list the performance of the fund and the benchmark side by side and compare the relative over/underperformance of the fund for each month and look either for months where the relative performance was much greater or smaller than the average or to look for certain patterns.
Types of investment analysis include bottom-up, top-down, fundamental, and technical.
Fundamental Analysis
Fundamental analysts use metrics including earnings-per-share (EPS), dividend yield, price-earnings (P/E) ratio, and return on equity to determine the corporation's value. This method also focuses on a company's assets, liabilities, and expenses.
To compare the performance of funds you've owned for different periods of time, you use annual percent return, which is percent return divided by the number of years you've owned the fund.
To calculate this, the fund administration determines the value of all the assets hold in the portfolio, then subtracts any debts and liabilities and divides the resulting amount by the number of outstanding units and shares of the fund.
5 IM-2210-6 defines an investment analysis tool as “an interactive technological tool that produces simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional ...
Key takeaways
While investment analysis is a complex process, it's going to ensure that your investment opportunity is well-analyzed and worthy of funding.
Net Present Value (NPV) and Return on Investment (ROI) are two valuable metrics with different uses. ROI is a comparison metric appropriate for assessing a technology investment, while NPV should not be used for comparing projects or assessing project viability.
Internal rate of return (IRR) is a tool used to measure the profitability of a capital investment. IRR calculates the discount rate that makes the net present value of the cash flows equal to zero. Assume that you apply a 7% discount rate to a project. If the net present value is positive, you should pursue to project.
Relative performance — Comparing your return to the overall market is a better measure. If your total portfolio is up 20% for the year and the overall market is only up 15%, you have done very well. Or if your portfolio is down 10% and the overall market is down 15%, you have done well.
How do I know if my mutual fund portfolio is good or bad?
- Volatility. Has your portfolio seen huge swings in the past?
- Debt cushion. Does your portfolio have a debt cushion?
- International. Is your portfolio having optimum exposure to international funds?
- Credit risk. ...
- Regular funds. ...
- Performance with NIFTY 50. ...
- Mid & small caps. ...
- Gold cushion.
Common technical indicators that can help evaluate a mutual fund as a good or bad investment include trendlines, moving averages, the relative strength index (RSI), support and resistance levels, and chart formations.
How Much Share to Give an Investor? An investor will generally require stock in your firm to stay with you until you sell it. However, you may not want to give up a portion of your business. Many advisors suggest that those just starting out should consider giving somewhere between 10 and 20% of ownership.
Net Asset Value Formula
The NAV of a mutual fund is calculated by subtracting the total liabilities from its total assets. Since NAV is typically expressed on a unit price basis, i.e. per share, NAV must be divided by the total number of units outstanding.
If a company is asking for $50,000 for 5% equity they are valuing themselves at $1,000,000.
The three steps in investment analysis are the following: identify the investment opportunity, find the present value of the future cash flows, and compare the present value of the cash flows to the cost of the investment.
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For stock market investing, the smart investor should analyze Fundamentals, Valuation , Intrinsic Value, Price Momentum, Pledged Shares and Debt Structure, at the very least, before making an investment.
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- Step One: Put-and-Take Account. This is the first savings you should establish when you begin making money. ...
- Step Two: Beginning to Invest. ...
- Step Three: Systematic Investing. ...
- Step Four: Strategic Investing. ...
- Step Five: Speculative Investing.
What skills should an investment analyst have?
- the ability to research, analyse and evaluate.
- excellent communication skills.
- the ability to work under pressure, meet deadlines and multi-task in a fast-paced environment.
- strong numerical ability and quantitative skills.
- self-confidence, drive and tenacity.
- the ability to work effectively in a team.
Investors are saturated with market commentary: overweight this, underweight that, or ride this long-term theme. Yet the best strategy is often to resist all of that and do nothing. The biggest problem that investors have is they can't sit on their bottoms and do nothing.
If the IRR is above the discount rate, the project is feasible. If it is below, the project is not. If a discount rate is not known, there is no benchmark to compare the project return against. In cases like this, the NPV method is superior as projects with a positive NPV are considered financially worthwhile.
IRR, or internal rate of return, is a metric used in financial analysis to estimate the profitability of potential investments.
If a discount rate is not known, or cannot be applied to a specific project for whatever reason, the IRR is of limited value. In cases like this, the NPV method is superior. If a project's NPV is above zero, then it's considered to be financially worthwhile.
