You can learn about mutual funds from a variety of sources: the fund's prospectus, financial publications, your financial advisor or our Web site. Additionally, there are a few key financial factors to consider when evaluating a mutual fund: dividend yield, risk, standard deviation and total return.

Dividend Yield

If your goal is to receive steady income, then you need to pay attention to the dividend yield. Basically, a dividend is the return on investment — the dollar amount of earnings each share receives (dividends per share). A mutual fund’s dividend yield shows how much a company pays in each year relative to its share price. You can calculate the dividend yield by dividing the annual dividend by the current stock price.

How do you measure risk or volatility? Measuring a fund's volatility can be determined by examining a fund's beta and standard deviation figures. These help measure risk. A mutual fund’s beta indicates how much risk it has compared to the market. If the beta is higher than the market’s benchmark index average of 1.00, then the fund is considered more volatile. Likewise, if the beta is less than 1.00, it is considered to be less volatile. 

Standard Deviation

However, a mutual fund’s standard deviation is a risk measurement that compares the fluctuations of returns in a fund rather than to an index. The standard deviation indicates the difference between actual and expected returns. The higher the standard deviation measure, the more volatile the fund will be. Likewise, the lower the standard deviation measure, the less volatile the fund will be.

The value of a fund over a set period of time helps determine your total return. It includes realized: interest, capital gains, dividends and distributions. To get a better idea of a fund's long-term performance, you should compare the average annual returns for three, five and 10-year periods.