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Free Wealth Management advice on Mutual Funds, Insurance, Bonds, Post Office Saving Schemes and Small Savings
Free Wealth Management advice on Mutual Funds, Insurance, Bonds, Post Office Saving Schemes and Small Savings

Free Wealth Management advice on Mutual Funds, Insurance, Bonds, Post Office Saving Schemes and Small Savings
Free bse nse stock tips on mobile by sms
Why Mutual Funds?
The Benefits of Mutual Funds
Types of Mutual Funds
The Power of Automatic Investing
The Magic Of Compounding
The Importance of Performance
Understanding Fees and Expenses
Selecting Funds for Your Portfolio
Redeeming Your Shares
Free Home Delivery of Mutual Fund Forms New!!
The Importance of Performance

Everywhere we turn, we read or hear about the latest performance results of mutual funds. While performance is a key evaluator to help you select a mutual fund, it is not the only factor upon which you should base your decision. Over time, performance data is also valuable to chart the progress of your investment to determine if it is helping you reach your goals.

It is important to understand that mutual funds do not offer a fixed rate of return: your principal value will fluctuate, and the return on your investment is not guaranteed. Mutual fund rates of return fluctuate with market conditions, changes in the valuation of the securities a fund invests in, or other factors. For that reason, it is helpful to examine performance over various time periods and keep in mind that performance is based on historical results and is not intended to project future performance of a fund.

If you are comparing the performance of several funds, be sure that you are making accurate comparisons: compare funds with the same investment objectives and fund policies before you look at the numbers.

Although numerous studies have been done to determine if no-load funds outperform load funds, the presence or absence of a sales charge really has nothing to do with performance. What is important to understand is that total return calculations usually do not take into account the presence of a load or redemption fees, but are calculated after expenses (management fees, operating expenses) are deducted. If you are comparing results of a load fund to a no-load fund, you must adjust performance results to include the load or redemption fee for a more accurate evaluation.

Average Annual Total Return is the most widely used barometer of fund performance. Performance results issued by fund companies, newspapers and magazines, and many fund information services typically show average annual total returns for specific time periods: one-year, three-year, five-year, 10-year or since inception.

Average annual total return is defined as the percentage change in a fund's net asset value, or share price, over a specified time and takes into account the impact of any distributions, dividends and interest payments and assumes reinvestment of all income dividends and capital gains distributions. A rather complicated mathematical formula is used to calculate average annual total return, so unless you have a finance calculator, you may want to simply refer to fund company literature or check published fund performance information sources.

  • Total Return generally shows how well your fund is doing -- without considering the impact of reninvesting dividends or distributions. It assumes that you would take distributions and dividends as cash at the end of the year and not use it to purchase more shares. This is not typically the number used by most sources in reporting performance results, but is provided here to generally illustrate how to calculate straight returns from information you have available.

  • Yield is a measure of a fund's dividend income or earnings paid out to you, usually expressed as a percentage of its current share price over a designated period. For a mutual fund, yield consists of dividend payments divided by the beginning value of the fund's shares (before any gain or loss in the price per share). A fund that paid Rs.200 in dividends on a Rs.2,000 investment at the beginning of a period provided a yield of 10%. Yield is probably most important to investors who are trying to generate current income. When the yield is added to the percentage gain or loss in the fund's shares, the result is total return.