How to Analyze Mutual Fund Financial Statements

by Nicole Crawford

Mutual funds are ideal for both beginning and experienced investors. They provide immediate diversification and tend to generate relatively consistent returns. Nevertheless, not all mutual funds are lucrative, and you should carefully analyze all financial statements to see how your fund is performing. Remember that although the annual return percentage is a good general indicator of your mutual fund's recent performance, other factors are just as crucial to your fund's long-term and short-term returns.

Find the net asset value of your mutual fund on the financial statement. The net asset value tells you how much liability your fund has compared to its assets. Generally speaking, the higher the net asset value, the better. Net asset value is also important because it determines the price per share. For example, if a fund has $100 million in assets and $25 million in liabilities, its net asset value would be $75 million. To find the price per share, investors divide the net asset value by the number of outstanding shares. For example, if the net asset value is $75 million and your mutual fund has 7.5 million shares outstanding, the price per share would be $10.

Analyze each of the assets in your mutual fund. A strong mutual fund provides diversification, which means that if one of the assets fails, there are enough strong assets to make up for the weak performance.

Compare your mutual fund's one-year, three-year and five-year performances. Mutual funds that have large increases as well as significant drops are less stable and more risky than funds that report consistent returns. For example, if a mutual fund had a moderate return in 2007 but had much lower returns in 2004 and 2010, it might not be the best investment.

Evaluate mutual fund expenses. As noted by the U.S. Securities and Exchange Commission, all mutual funds have custodial fees and operating costs, which may include brokerage and accounting fees as well as marketing and legal expenses. The SEC limits its redemption fees to 2 percent. If your mutual fund expenses are higher than 1.5 percent of your total investment, Investopedia recommends discussing the fees with your fund manager.

Use benchmarks to evaluate your mutual fund's performance. Reliable benchmarks include the Dow Jones Industrial Average, S&P 500 and the Nasdaq. Some mutual fund managers use inappropriate benchmarks to make their mutual funds appear better than they actually are. By comparing your mutual fund to these benchmarks, you'll get the best idea of its actual performance relative to other stable investments.

About the Author

Nicole Crawford is a NASM-certified personal trainer, doula and pre/post-natal fitness specialist. She is studying to be a nutrition coach and RYT 200 yoga teacher. Nicole contributes regularly at Breaking Muscle and has also written for "Paleo Magazine," The Bump and Fit Bottomed Mamas.

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