MUTUAL FUNDS RANKING ON PERFORMANCE

2007-03-08 10:33:40

( Financial )



Mutual funds pools investments of individuals and invest their money into stocks, bonds, short-term money market instruments and securities. It is much safer to invest in mutual funds due to the diversification of its investments. It has large number of investments across various types of investments that reduce the risk for its individual investors.

Mutual funds ranking is based on their general performance in the market in comparison with the performance of other mutual funds. A rating system organization ranks the top rated mutual funds in the market every year to guide investors which funds are the best in the market.

The level of mutual funds ranking determines the quality of the performance of mutual funds vis-à-vis the standards in the industry. Rankings are usually done using a one to five star system wherein the highest star provided represents the highest quality of performance for a mutual fund. The top five percent of mutual funds are usually provided a five star rating while the lowest five percent are provided with a one star rating.

Three years, five years and ten years are the three time periods that mutual funds ranking are conducted to established history of performance of mutual funds being rated. The ratings from these three time periods are combined to create an overall mutual funds ranking that will be released by rating organizations into the market.

Mutual funds ranking is done using a mathematical evaluation of previous performances of mutual funds. Computations of average expenses, average turnover, average assets and volatility are part of the mathematical evaluations conducted to determine the level of performance of mutual funds being ranked. The average net asset value is also being considered to determine a mutual funds performance.

The quality of fund managers in mutual funds is also being considered in ranking mutual funds. Fund managers are the driving force behind the operations of mutual funds. Having a top caliber professional fund manager will be an asset to mutual funds.


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