Performance

Investors like to see not only the rate of return for an individual mutual fund but also how that fund compares to other similar funds. To see the performance of a fund, investors need look no further than the newspaper or some other quote source. To see how a fund compares to other funds, investors can consult either the Morningstar Ratings or the Lipper Ratings.

The SEC requires mutual funds to furnish historical returns for the following time periods so you can easily see how well a fund has been performing:

Year to date

One year

Three years

Five years

10 years

Since Inception

While seeing how a fund has performed in the past is extremely useful, you don’t have a complete picture of how well the fund has done unless you compare it to other similar funds. For this comparison, you will need to utilize rating from either Morningstar or Lipper. Both of these companies compile comparative performance-based information.

Morningstar rates funds using a “star” system—with 5 stars being the highest rating and 1 star being the lowest rating.

5 stars indicates the fund is in the top 10 percent of its Morningstar category.

4 stars indicates the fund is in the next 22.5 percent of its category.

3 stars indicates the fund is in the next 35 percent of its category.

2 stars indicates the fund is in the next 22.5 percent of its category.

1 stars indicates the fund is in the last 10 percent of its category.

Lipper rates funds using a numeric score—with a “1” being the highest rating and a “5” being the lowest rating.

Now that you know how to measure a fund’s performance, what are the expenses that can affect a fund’s overall performance?

Next Article: Expenses and Prospectus >>

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