InvestorQ : Why some mutual funds don't perform even though the stocks involved in them perform well?
seema Upadhyaya made post

Why some mutual funds don't perform even though the stocks involved in them perform well?

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Radhika Arya answered.
1 month ago
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I am assuming you want to understand why the performance of mutual funds diverges from that of its underlying stocks. Active management is dependent on the success of two important components in the investment process – stock selection skill and portfolio management.

A fund manager of a mutual fund not only has the pick the best stocks, but he also has to assign weights to those stock picks in order to achieve optimal returns. So, the stock holdings and the weights assigned to them in the overall stock portfolio together influence the returns of a fund. This means that stock A may have rallied in the past few trading sessions.

However, if its weight in the mutual fund portfolio is low, say less than 20%, it may not lead to a huge increase in the mutual fund’s net asset value.

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