Mutual Fund Rates
In general, the "rate" of a financial instrument is its advertised return over time. For example, a bank might offer a certificate of deposit at 2% interest rate, in which case any savings would accrue 2% increase over a year. Another example is a corporate bond offered at 5% rate, in which case the investor should expect to make back 5% of his or her initial investment after purchase of the bond. What we say here is true for both high yield mutual funds and high yield bond funds.
A Misnomer
As we will now explain, the term "rate" is not correct when applied to a mutual fund. While bank and CD interest are true rates in the sense that they provide steady, unchanging returns to the investor, a mutual fund may end up going negative in any particular time period, thereby invalidating the rigorous concept of a "rate". Money market mutual fund rates are no different because the principal value of the fund fluctuates. Because of the fluctuating nature of mutual funds, there can be no rate. For example the term "historic rate of return" is frequently used, as well as the "performance", or the "yield" of the mutual fund. Investors refer to the "rate" in the same way that they refer to bank interest rates and certificate of deposit (CD) rates, i.e. the percentage return based on the amount of initial investment. Investors should watch for claims made by best mutual fund companies.
"Historical" Rates
To calculate the historic mutual fund rate of return, one takes the current value of a share of the mutual fund in question and subtracts its value at a point in time in the past, such as 1, 3, or 5 years ago. Then this difference is divided by the past value. Because the current value is always changing, it's clear that the historic rates of return must always be calculated. Sometimes the historic mutual fund rates are even negative when times have not gone well. Rates also depend on the sector type, such as energy, gold, silver, futures or gnma mutual funds.
But Not a Guarantee
The investor should always be aware that these historic rates are not a guarantee that future rates will even be remotely similar. Sometimes high yield bond funds do very well for five years but suddenly they do very poorly in the next. This can be due to a variety of factors, such as the portfolio companies hitting a rough patch due to changes in federal law, major revisions of bank interest rates, and collapses of certain sectors due to presence of bubbles.
Rates Are Just One Part of the Evaluation Process
That being said, in order to evaluate the quality of high yield mutual funds, most people want to at least know the mutual fund rates. This knowledge is just one piece of the whole picture used to evaluate the prospects of the fund. The investor should also take into account the types of stocks or financial instruments that in the fund portfolio, the fund manager if it is an actively managed fund, as well as the impact of fees on the return which is sometimes termed the "load" of the mutual fund (this is discussed on this website elsewhere)
Rate Tables On This Site
Please take a look at the mutual fund rates on this website. The tables are given for the highest historic 1-year rate divided by the type of the mutual fund, which can be categorized according to sector, size or kinds of financial instruments in the portfolio. An attempt has been made to stick with open mutual funds rather than closed mutual funds, and both no-load, index funds and actively managed, fee-based funds are considered.