Benchmarking Funds: One Size May Not Fit All

You’ve probably noticed that your mutual fund account statement shows two sets of figures for average annual total returns: one is adjusted for the maximum sales charge; the other is unadjusted. Which figure should you use to compare the performance of your investment to its benchmark?

First, some background. The Securities and Exchange Commission (SEC) requires mutual funds to show both figures to provide investors with a fair and accurate comparison.

Unadjusted figures

Unadjusted figures show the performance of a fund taking into account changes in share value and assuming all income and capital gain distributions will be reinvested; however, they don’t adjust for sales charges.

Adjusted figures

Adjusted figures use the same calculation as unadjusted figures, but also factor in the effects of the maximum sales charge that can be applied to a certain share class.

Is either comparison right for you?

If you paid a sales charge, looking at unadjusted figures may not be a good comparison. On the other hand, the adjustment for maximum sales charge may not reflect your particular situation. For example, if you own Class A shares with a 5 percent up-front sales charge, the sales charge would have impacted your investment in the year of purchase, but the adjusted figures would show its performance as if you had invested today.

As well, sales charges are sometimes waived or reduced, so you may find that neither adjusted nor unadjusted sales charges reflect your own investment experience.

Personal performance data

You may want to look at your year-end account statement to see if it has personal performance data. Some mutual fund companies provide it, and when available, it will offer the most accurate measure of your investment, taking into account all transactions and any sales charges you paid.

As well, your financial advisor may be able to provide you with personalized return information and help explain it to you.