Understanding Fund Facts

Every time you purchase a new mutual fund, you’ll receive the Fund Facts that go along with it. A Fund Facts document summarizes key information about the fund you’ve bought, including its performance history, investments, risk rating and the costs associated with owning it.

The fund’s investments

A mutual fund is a collection of investments, such as stocks, bonds and other funds. Your Fund Facts document provides you with a quick overview of the fund’s top investments, as well as the mix of the overall investment portfolio.

Looking over a Fund Facts document, you’ll be able to quickly find out what the fund’s 10 largest investments were as of the date that the document was produced, as well as the percentage of the net asset value that each of the top 10 investments represents. Fund Facts also provides you with the total number of investments in the fund, giving you a sense of how diversified the fund’s investments are. Learn more about how diversification works.

The investment mix section of a Fund Facts document provides a breakdown of the fund’s investment portfolio. This mix may express the fund’s investment mix by the industries that it invests in, its asset classes, the geographic locations of its investments, or other measures that can give you a better idea of the fund’s investment exposure.

Risk rating

All investing involves some amount of risk. Generally, the higher the risk of an investment, the higher the potential return, though there is no guarantee that you will actually get a higher return by accepting more risk. One way to gauge a fund’s risk is by looking at how much its returns have changed over time. This is what’s known as the fund’s “volatility,” and Fund Facts use volatility to communicate a fund’s risk rating.

Volatility is calculated using a method that’s based on standard deviation, which considers how much a fund’s annual returns have deviated from the expected normal returns. Funds with returns that have varied greatly from the average will have a larger standard deviation, and will be more volatile, while more stable funds will have deviations that are lower.

Once a fund’s volatility has been measured, it is categorized into one of five potential risk categories for your Fund Facts document: Low, Low to Medium, Medium, Medium to High and High. This is determined by the fund’s manager and gives you an indication of how volatile a fund has been in the past.

Volatility is one way that that risk can be measured, but does not capture other factors that can affect how suitable a fund may be for your investment portfolio. Other factors may include how much a fund lost during a period of market decline or how long it took the fund to recover. It’s also important to remember that while historic volatility of a fund can provide insight into how it has behaved in the past, it cannot predict how it will behave in the future.

While the Fund Facts risk rating tells you about the fund’s overall volatility, it’s not necessarily an indication about how suitable the fund is for you. Depending on your risk tolerance, investment objectives and time horizon, you may need to hold a range of products with varying risk ratings in order to achieve your financial goals. Learn more about why risk matters.

Past performance

The past performance section of your Fund Facts document shows you how the fund has performed over the long term. You’ll see the fund’s year-by-year returns for the last 10 years or, if it hasn’t been around that long, its performance from the date it was created and began reporting.

This information will let you know how often the fund dropped in value over the past 10 years (or less, depending on how old the fund is) and the change in its value over that period, which you can use to help assess how risky the fund has been in the past. These returns are the net returns, after the fund’s expenses have been deducted.

You’ll also be able to see the fund’s best and worst returns in a three-month period. While future three-month returns could be higher or lower, laying out the fund’s past highs and lows can give you a sense of how much your investment could change in a short period of time.

Sales charges and fund expenses

Sales charges and fund expenses reduce a fund’s returns, and sales charges can affect how much it costs you to buy or sell fund units. Using the Fund Facts document, you’ll be able to find important information about charges and expenses like the fund’s management expense ratio (including trailing commissions) and trading expense rating, as well as other fees.

The management expense ratio, or MER, is a combination of a fund’s management feeManagement fee A charge that you pay for having an investment professional manage an investment fund. The fee pays the managers for their time and skills. It may also cover things like communicating with investors and doing all the paperwork needed to run the fund.+ read full definition and its operating expenses. It’s paid by the fund and is expressed as an annual percentage of the total value of the fund. The trading expense ratio, or TER, is a measure of the fund’s trading costs, giving you an idea of how much it cost the fund to buy and sell its investments.

MERs include any trailing commissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition that are paid by the fund to your advisor’s firm for as long as you hold the fund. While not every fund pays trailing commissions, most funds that are sold outside of fee-based accounts or discount brokerageDiscount brokerage A brokerage firm that charges lower fees to buy and sell investments, as opposed to a full-service brokerage. Does not provide investment advice.+ read full definition accounts do. Learn more about trailing commissions and other fund fees.

Other important information

Your Fund FactsFund Facts A user-friendly guide that provides key information about a mutual fund including fees and performance. Mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a fund.+ read full definition document also contains “quick facts” about the fund’s value as of a particular date, the fund managerFund manager A fund manager is responsible for investing the pool of money that people have put into the fund. The manager chooses investments that match the fund’s goals for risk and return.+ read full definition, the required minimum investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition, and other relevant details. You’ll also find information about how to contact the fund manager and how you may be affected by taxes.

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