Mutual funds combine the deposits from numerous investors to purchase securities such as stocks or bonds. This offers the benefits of professional fund management and the ability to buy securities that may not be available to small-scale investors. The main disadvantages include management fees and lack of control over the components of the fund. Mutual fund shares are not traded on secondary markets, so you must buy and sell your shares directly from the fund or through a broker. Funds are grouped by category based on the focus of their investment portfolios, such as bond funds, stock index funds or technology funds.
Mutual fund performance charts show the fund's earnings over a particular span of time. You can find interactive performance charts on investment research sites such as NASDAQ.com and Fidelity.com. Most sites allow you to select several funds to compare their performance on the same chart.
Depending on the research site you use, you can usually select different time periods to show the fund's long-term performance. You may also be able to display the numerical percentage gain or loss at the bottom of the chart. These are typically broken down by key dates, such as one month, six months, one year and five years. The month or year is shown on the x-axis of the performance chart. Longer time frames will give you a flatter line on the chart.
The y-axis of the chart displays the fund's performance over the specified date range. Depending on the site, performance may be measured by share price or how much an investment of a specific dollar amount would yield. For example, if you invested $1,000 into a fund with a 15% return, your account would be worth $1,150 after one year. The chart allows you to quickly spot trends in performance as the line rises or falls.
You will find more accurate information and comparisons if you choose a longer time period. For example, five-year data is more indicative of a fund's typical performance than a one-month sample. Select groups of the same type of funds at a time to get the most accurate comparisons. For example, comparing a bond fund against an international fund may not give you a complete picture of the risk and reward involved with each investment choice. Comparisons between funds that launched in different years may also not be as useful as comparing funds of similar age since the older fund has had more time for its investments to mature.
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