Posted: November 19th, 2022

Mutual fund

As defined and explained by many scholars mutual fund is an investment program which trades in various holdings and is professionally managed. The program receives its funding from the shareholders (Cuthbertson, Nitzsche, & O’Sullivan, 2010). Notably it can define as a collection of shares or bonds in an organization. Mutual funds performance measuring is used in measuring the returns, gains or losses experienced after an investment takes place. According to many academics, a mutual fund is an investment program that trades in various holdings and is professionally managed. The program is supported by the shareholders (Cuthbertson, Nitzsche, & O’Sullivan, 2010). Notably, it can be defined as a collection of shares or bonds in a company. Mutual fund performance is used to calculate the returns, gains, or losses experienced after making an investment.
Benchmarking and per groups is an important tool in measuring mutual fund performance. Under this scenario mutual funds are required to compare and contrast their performance to an independent measure called benchmark. A benchmark is an index that is used in measuring the performance of a assortment of similar securities. There exist different benchmarks that are used to measure different types of funds. Peer comparison is also an important tool used in measuring of mutual fund performance.
There are several indicators that are used in determining the risk level of mutual funds and other forms of investments, these include alpha beta, r squared, and standard deviation. Alpha is described as the measure of investment performance on risk adjustment basis. Alpha takes the price risk of a security and compares its risk adjustment performance to a benchmark index (Barras, Scaillet, & Wermers, 2010).
Beta coefficient is defined as the measure of the systematic error of a security. This coefficient compares with the market as a whole and is calculated through the analysis of regression. R squared is a statistical measure used to represent the percentage of security movements which is elaborated by the movement in the benchmarking index (Kosowski, 2011). Standard deviation is a method that is used in measuring data dispersion from its mean. In measuring of mutual funds performance, standard deviation is used in measuring the rate of annual return on an investment to its risk. Mutual fund performance are useful in measuring returns as they are more accurate and involves the shareholders hence I would embrace them.

References
Barras, L., Scaillet, O., & Wermers, R. (2010). False discoveries in mutual fund performance: Measuring luck in estimated alphas. The Journal of Finance, 65(1), 179-216.
Cuthbertson, K., Nitzsche, D., & O’Sullivan, N. (2010). Mutual Fund Performance: Measurement and Evidence1. Financial Markets, Institutions & Instruments, 19(2), 95-187.
Kosowski, R. (2011). Do mutual funds perform when it matters most to investors? US mutual fund performance and risk in recessions and expansions. The Quarterly Journal of Finance, 1(03), 607-664.

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