Mutual funds defined

Mutual funds – this is a company that manages a group of stocks and bonds for you.  Think of it as though you hired someone to invest the way you would, or according to a certain idea that you had.  .

There are over ten thousand different mutual funds out there and it seems like almost as many different ways of comparing them to each other and figuring out what they do and ways to compare them.  You can literally be paralyzed by all of the information available to you.  Here are a few of the basics you need to know.

mutual fund expenses and fees

Today, the average mutual fund expenses are 1.25%. these are deducted from the clients profits
Fund share class - Here are the basics on mutual fund share classes: Class A Share Mutual Funds: These funds charge what is called a "front load," which means that you'll pay a percentage of your purchase amount every time you buy shares. Front loads typically range between 3% and 5% but they can be higher.

 

2                     Expense ratio - The expense ratio is the annual fee that all funds or ETFs charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund

 Today the average fund charges 1.25%, down from 1.28% in 2012 and off from a peak of 1.47% in 2003.

 

3                     Short term trading fee - A mutual fund redemption fee, also referred to as a “redemption fee”, “market timing fee”, or “short-term trading fee”, is a charge by a mutual fund company to discourage investors from making a short-term “round trip” (i.e. a purchase, typically a transfer, followed by a sale within a short period of time).

mutual fund metrics

1                     Lipper ranking - Each fund is ranked against its peers based on the metric used (such as Total Return or Expense), and the highest 20% of funds in each peer group are named Lipper Leaders, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1

 2                     Morningstar ranking The Morningstar risk rating is a ranking given to publicly traded mutual funds and exchange-traded funds (ETF)s by the investment research firm Morningstar. The ratings range from one to five stars, with one being the poorest rank and five being the best

They call these the greeks
3                     Alpha. Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its "alpha."

 4                     Beta - A beta of less than 1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more than 1.0 indicates that the investment's price will be more volatile than the market. For example, if a fund portfolio's beta is 1.2, it's theoretically 20% more volatile than the market.

5        R squared - is a measure of the percentage of an asset or fund's performance as a result of a benchmark. R squared is reported as a number between 0 and 100. A hypothetical mutual fund with an R-squared of 0 has no correlation to its benchmark at all.