What is the average interest rate or principal used on Mutual Funds?

Monday, Jul 11, 2016

Kamal:
First, just to make clear, I am talking about municipal bond funds, not stock mutual funds.
There is no single average interest rate/yield for muni funds.  The returns will vary depending on the maturity focus (short-term vs. long term), as well as the underlying credit risk of bonds that make up the portfolio.
If you’re looking for a short-term fund for safety and liquidity, the yield/interest rate will be very low.  As a comparison, average yields on municipal short-term bonds of 3 years or less offer an average return of about 0.84% per year.  This fund would also have high quality municipal bonds in the portfolio.
A fund with an average maturity of 15 years could offer about 1.67% annually.  Keep in mind that these returns are not guaranteed. If you need to liquidate your fund share, it could be lower than what you paid for the share if interest rates are increasing.
Then there are high yield municipal bond funds.  Yields/interest rates on these funds could be as high as 6+%  annually, but the investments in the portfolio are subject to more credit risk.  Rating downgrades and defaults (such as those occurring now in Puerto Rico) could force your fund to liquidate some of its investments at a loss, lowering the value of their shares.  Losses from defaults will also reduce your investment.
As for principal, I assume you mean what is the minimum cost to buy into a mutual fund.  Those vary greatly depending.  I have seen funds with minimum initial investments of as low as $ 250, and as high or higher than $3,000.
I hope this answers your questions.
DICK LARKIN Stoever Glass & Co., Inc.

Stoever Glass Wealth Management Client (Schwab Alliance)

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