How to rate and analyze mutual fund?
Rating and analyzing mutual funds is an imperfect science. Using the following ratios may help us determine how well a fund has performed in relation to risk and return of money market rates and other benchmark indexes. Sharpe Ratio The Sharpe ratio measures the return of a mutual fund compared to the risk-free rate of return, which is the 91-day T-bill rate. This should be similar to money market returns. Often this ratio is used to determine if a mutual fund is able to beat the money market. Say a growth fund has a Sharpe ratio over the last five years of 0.57 and the recent range of Sharpe ratios for global equity funds went from as low a –1.11 to a high of 0.94. A positive Sharpe ratio means the fund did better on a risk-adjusted basis than the 91-day T-bill rate. In other words, the higher the Sharpe ratio, the better. The Sharpe ratio tells you about history but it does not tell you anything about the future. Just because a fund has a positive Sharpe ratio for the last five years
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