Evaluating Mutual Funds Performance

Mutual Funds Performance is commonly be measured by “rate of return”. The rate of return on a mutual fund investment for a period of one year, for example, is calculating difference in Net Asset Value (NAVt–NAVt–1) and adding the income and capital gains distributed during the year and dividing the sum by the NAV at the beginning of the investment date. The following describes the calculation of return for no-load funds:

where R represent rate of return, i represent income, and c is capital gains. The performance of a mutual fund is often compared with the performance of a benchmark portfolio that is selected to reflect the investment risk level of the fund’s portfolio to see whether the mutual fund had a superior performance. Some of benchmarking portfolios are S&P 500, NASDAQ, NYSE, or other index depends on the type of mutual funds.

Example of graphical results of mutual funds performance comparation is presented below:

Read Also:

1. www.wikipedia.org/mutual_funds

2. Encyclopedia of Business and Finance (Kaliski, 2007)

Related Posts