The way up Know benchmark for all your fund schemes and compare returns with that Judge returns from a fund relative to its risk profile Separate stock or sector risk from market risk while evaluating a fund Diversify your fund investments and keep rebalancing as markets change to maintain the desired allocation

Click here to see: A fund for everyone

If you go to a doctor complaining of a headache, you will almost certainly be asked if it's an acute pain or chronic pain. If the headache is the result of bad investments made over a period of time, it's chronic and your portfolio might need professional help. But if you're stressed out by the performance of your mutual fund holdings in the past few months, the pain might be acute, but be sure that it will go away.

The doctor you consult about those headaches might even give you some extra information, based on latest research. It might not make the pain go away, but at least you know why you got it in the first place. It's the same with your investments in mutual funds right now. Both equity and debt funds have reported far from impressive performances since January.

A look at table 'All fall down' will tell you how bad the returns have been on different categories of fund schemes-equity or debt. But before you do anything to your investments (or even if you don't make any changes in your investments right now) you need to know what exactly had led to this allaround fall.

This is why we decided to bring you some lessons on fund investing that you would have ignored in the past few years, when most of your fund investments made nothing but profits. Most of us buy funds simply because we know little about the market and even less about statistical research, but still want decent returns. But it always pays to know what's happening in the industry that is bursting with choices-and confusion-for the investor.

That means why, when and where you make one fund investment can be very different from the reason for which you make another investment. We also try to convince you in the following pages why it makes sense to understand the various ratios involved when evaluating a fund's performance.

Mostly, the interplay of macroeconomic factors ensures that when returns on equity funds fall or stagnate, the return on debt funds go up. That was the expectation this time around as well, at least till as recently as the beginning of February. The expectation that interest rates would be lowered had led to the belief that returns on debt fund schemes will go up just when mayhem in the markets was pulling down returns on equity funds. But a sudden spike in inflation ensured interest rates did not come down. Returns on debt funds too began to fall.

All fall down
Percentage returns on different categories of mutual funds
Category	3-month	6-month	1-year
Equity Diversified	-8.72	-12.03	22.08
Equity Index	-13.55	-20.53	12.95
Equity IT	-3.89	-6.75	-13.39
Equity Infrastructure	-10.68	-15.57	35.90
ELSS (Tax plans)	-9.88	-12.96	21.32
Balanced-Equity	-6.20	-7.96	19.78
Balanced-Debt	-3.31	-3.84	11.04
MIP	-1.26	0.02	9.10
Income Funds	0.72	3.20	7.86
Liquid Funds	1.75	3.75	7.27
Data as on 31 March 2008. Source: NAVIndia

The good news (and yes, there is good news even in such a situation) is that analysts predict the worst is possibly over. Even better news is that investors have become curious and are looking beyond returns to evaluate their mutual fund holdings (see guest column on facing page). Whether you are one such investor or not you need to learn something from the past few months' experience. With 34 fund houses in the country, each offering a bewildering array of schemes, investors will have to understand the difference between various mutual fund categories, their own risk levels, the time frame that best suits their objectives and the like.

No longer can investors afford to say that funds are for those who don't want to track the markets. Today, anyone with any form of investment cannot afford to stay ignorant of market movements and the wider economic implications of any policy announcement. The recent downturn in mutual funds, although a passing phase, has brought this lesson home. Are we prepared to learn from it so we can all become more evolved and intelligent investors?