But past performance is not as important as you may think, especially the short-term performance of relatively new or small funds. The past performance of a scheme is no guarantee of future prospects and in fact replicating the kind of performances that most schemes have shown over the past six months would be downright difficult. However, keeping in mind a few prudent factors, such as the ones listed below, you could at least marginalise your investment risk to a small extent. So, look at more than the fund's past performance when making your investment decisions.
Funds charge investors fees and expenses.
A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time. Consider the age and size of the fund. Before investing in a fund, read the prospectus to find out how long the fund has been operating and the size of the fund. Newly created or small funds sometimes have excellent short-term performance records.