How Do I Understand an Annual Mutual Fund Statement?

The annual report contains a wealth of information.
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The annual report you receive from your mutual fund company is a very important document, and you should take the time to read and study it thoroughly. This document provides information on everything from the performance of the fund relative to its benchmark index to the expenses charged by the fund to the exact holdings of the portfolio. Learning to understand this critical document can make you a better, and ultimately a wealthier, investor.

Step 1

Turn to the front of the annual report. This is where you will find information on the performance of the fund. The annual report lists the performance of the fund over many different time periods, from the last three months to the last ten years or longer if the fund has been around that long.

Step 2

Compare the annual performance of the fund over all the time periods shown. A fund that has had steady performance during many different types of markets is likely to be less volatile than one that was up sharply one year and down just as sharply the next. Reviewing the annual performance figures is one way to gauge not only how well the fund is doing but how volatile it is likely to be going forward.

Step 3

Review the annual performance numbers and compare them to the benchmark index for the fund. Each fund will use a different type of benchmark depending on what the fund invests in. A widely diversified stock mutual fund, for instance, might use the Standard and Poor's 500 or Wilshire 5000 index as its benchmark. It is a bad sign if the fund has consistently performed worse than its benchmark index.

Step 4

Turn to the section detailing the holdings of the fund. The annual report lists the percentage of the fund that is invested in many different sectors of the market, including commodities, utilities, technology, consumer stocks and retailers. The annual report further breaks down these holdings into individual stocks, allowing you to see exactly which stocks the fund owns.

Step 5

Compare the holdings of the fund to other funds you own. You might find that you own many of the same stocks, even though the funds are different. If this is the case, you might want to further diversify your holdings by choosing a stock fund in a different category, like a small cap fund or a sector fund. Small cap funds invest in smaller companies and start-ups, while sector funds concentrate their investments in a single part of the market, like technology or bank stocks.

Step 6

Check the net asset value of the fund as reported in the annual report. The net asset value is the share price of the mutual fund, and if it has gone up, the fund gained value for the year. If the NAV dropped, the fund lost value over the course of the year. Compare the net asset value of the fund as shown on the annual report to the average cost basis as reported on your monthly statements to see if you have a gain or a loss.

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