A mutual fund's performance is an important factor in determining whether to choose it or not over other fund management companies, or over other types of investments. Compared to traditional bank instrument like savings and time deposits, investing in mutual funds earn more for your money, faster.
Performance may be assessed based on the history of volatility of a mutual fund. This means the frequency or rate of its risky investment decisions and the level of its participation in high-risk investments. If you are the type who wants an assured profit, stay away from mutual funds with high volatility rate. Volatile performers are often inconsistent when it comes to performance, some time a top pick among the best of the mutual fund crop. at other times, falling below the list.
The kind of stocks or shares a mutual fund invests in is also not a reliable reflection of its true performance. This is because the size of the mutual fund also matters in this case. New and small mutual funds often grow big following the success of a few of its initial stocks or preferred class (A or B shares) or by assigning different volumes when purchasing each class. But when applied to a larger, longer-operating mutual fund, the same choice of successful stocks and shares may not have a big or lasting effect.
All in all, performance is a good indicator of a mutual fund's overall reliability and expertise but it is not the most important factor since earnings (or losses) of a mutual fund investment also depends on other outside market forces.