Mutual Fund Comparison

Filed under Mutual Funds

If you are looking at investing in mutual funds then chances are that you are quite aware of how the system works. And as a next step you are looking at comparing the options available to you and such actions are highly recommended and imperative in making the right, informative decision. After all we are talking about your money and that?s not something you can play with or take lightly. So how do we execute a proper mutual fund comparison? What are the aspects we need to look at when looking to conduct a viable and comprehensive mutual fund comparison?

We can start by looking at probably the key most aspect and that?s the return on investment. One good way to look at this aspect is by considering historic returns. But when looking at a mutual fund comparison, considering historic return figures you must also be cautious on the methods they have been derived at as various mutual funds will use various methods of calculating. Therefore you will need to look at a uniform method when figuring out who has delivered the best when it comes to returns. A truly serious mutual fund comparison will also require you to consider returns based on arithmetic and geometric mean as well as yield and risk adjusted return measurements.

An aspect that is equally important is the level of risk. The level of risk will vary from one to another based on the investment portfolio. A thorough analysis of the various investment options the funds have considered will allow you to make common sense deductions on where to get into and where to not get into and enable you to make a simple mutual fund comparison. But if you are looking at a comprehensive and focused mutual fund comparison you might have to look at standard deviation, bond duration as well as risk to returns. The latter can be gauged by analyzing coefficient of variation as well as the Sharpe and Treynor ratios.

By analyzing these variables and results you could come up with a shortlist of options in your quest for a foolproof mutual fund comparison. The next step is to interact with them and see the levels of professionalism and management they follow. How easy they are to work with, how quickly they respond to queries are all important aspects required to make the right call. After all while a mutual fund comparison reveals certain things that will help you make the right call they won?t reveal how or why a certain option is better based on operation practices. And sometimes finding a flexible, friendly and professionally managed operation is just as important as finding one that offers the highest returns with the lowest risks.