Evaluating mutual fund performance: metrics and benchmarks

Mutual funds are an essential investment tool for individuals in Singapore looking to diversify their portfolios and achieve long-term financial goals. These funds pool money from multiple investors and invest them in various securities, such as stocks, bonds, and currencies. With the rapid growth of the mutual fund industry in Singapore, investors need to have a comprehensive understanding of how to evaluate the performance of these funds.

The evaluation of mutual fund performance is based on various metrics and benchmarks that provide insight into the fund’s overall health and effectiveness. These metrics help investors assess their investment choices, monitor their portfolios, and make informed decisions. This article will discuss metrics and benchmarks for evaluating mutual fund performance in Singapore.

Total return

Total return measures a mutual fund’s overall performance, considering capital appreciation and dividend payments. It is expressed as a percentage and reflects an investor’s total gain or loss over a specific period. This metric is crucial for investors as it shows the actual returns generated by the fund and considers factors such as fees, taxes, and inflation. A high total return indicates that the fund has performed well, while a low return suggests otherwise.

In Singapore, top-rated mutual funds have consistently delivered impressive total returns compared to their benchmark indexes. For example, an average five-year annualised return for equity funds in Singapore was 4.9% compared to the Straits Times Index’s (STI) return of -0.22%. This significant outperformance by certain mutual funds highlights their ability to generate returns despite market conditions.

Investors should also consider the total return relative to similar funds to gain a better perspective on performance. For instance, if Fund A delivers a total return of 8%, while Fund B provides a return of 10%, investors would likely choose Fund B. However, risk and fund objectives should also be considered when comparing returns.

Total return can be used to evaluate the performance of different asset classes within a mutual fund. For instance, if an equity fund has been underperforming due to a particular sector, but the overall total return is positive, it may indicate that other sectors are performing well.

Expense ratio

The expense ratio is a metric that measures a fund’s annual operating expenses as a percentage of its assets under management (AUM). Operating expenses include fees paid to the fund manager and administrative and marketing costs. A lower expense ratio indicates that a mutual fund is more cost-effective, leaving more returns for investors.

In Singapore, the average equity fund expense ratio was 1.67%, while the average bond fund expense ratio was 1.28%. However, the top-rated mutual funds in Singapore have consistently maintained lower expense ratios than the industry average. For example, a top-ranked equity fund had an expense ratio of 0.92%, while a top-ranked bond fund had an expense ratio of 0.75%.

Investors should be cautious of high expense ratios, which can significantly impact returns. For instance, a fund with an expense ratio of 2% would have to generate a return of at least 2% before investors can see any gains. Higher expenses can lower net asset values and decrease the total return.

Investors should also consider the fee structure when evaluating the expense ratio. Some funds may charge performance fees, which are a percentage of profits. These fees can significantly impact returns, especially during periods of high market volatility when funds perform well.

Sharpe ratio

The Sharpe ratio measures the risk-adjusted return of a mutual fund, taking into account its total return and the level of risk involved. It is calculated by subtracting the risk-free rate (usually a government bond yield) from the fund’s total return and dividing it by its standard deviation. The higher the Sharpe ratio, the better the risk-adjusted performance of a mutual fund.

In Singapore, top-rated mutual funds have consistently maintained higher Sharpe ratios than their benchmark indexes, indicating superior risk-adjusted performance. For example, an equity fund with a Sharpe ratio 1.2 has outperformed its benchmark index (STI) by 20%.

The Sharpe ratio is an essential metric for investors as it considers both returns and risk, allowing them to make more informed investment decisions. Investors should invest in mutual funds with higher Sharpe ratios to achieve better risk-adjusted returns.


Alpha measures a mutual fund’s performance relative to its benchmark index, considering its risk and return. It is expressed as a percentage, with positive alpha indicating the fund has outperformed its benchmark, while negative alpha indicates underperformance. Alpha can help investors evaluate how much value a fund manager has added to the portfolio.

In Singapore, top-rated mutual funds have consistently delivered positive alphas compared to their benchmark indexes. For example, an equity fund with a positive alpha of 1.5 has outperformed its benchmark index by 50%. It indicates that the fund manager has made good investment decisions and added significant value to the portfolio.