For a product intended to make life simpler that's a big problem. Investors don't have many options:

• Delegate the decision to a hunch, or an adviser
• Don a green eye-shade, roll up shirt sleeves and put in a few late nights going through reams of raw data.

Neither is satisfactory.

Better ways are clearly needed. So far the only real way of filling that demand has been the league table. Unfortunately it can be seriously misleading.

Finding the right funds to put in the table is tricky. Generally the idea is to put similar funds together but that is not easy. It is hard to separate Value funds from Growth ones for example. The results are a bit like running a joint football and cricket league.

Even if the comparisons were always spot-on, league tables can still cause trouble. The problem is there is little evidence that future performance will match past growth.

FT Fund Ratings attempts to do better.

Risk
Our approach has been to apply an advanced but well-tested model that derives information about the risks of the fund from its price movements with the aid of something called "Arbitrage Pricing Theory".

This allows us to extract a picture of the risks of the fund that doesn't put everything on a single scale. Instead risk is measured in 20 ways. Using this model we can create peer groups of funds based on the risk they have demonstrated in the past. This analysis underpins the entire rating system.

With 20 pieces of information about the risk of each fund, focussing on just one would be wasteful. So instead of just ranking funds, we identify groups of them with similar risk and use their average as a representative figure. This is called the Risk Profile.

Up to this point it has been a purely mathematical exercise, but it proves remarkably effective and the groups of funds fall into recognisable types. The approach is so effective that we are confident that if we were provided with a record of the price movements of a fund we would be able to identify its type.

As a result, the Risk Profiles can provide useful descriptions of the likely behaviour of the fund.

We provide additional information to put this into context.

First of all we produce a Match rating on a five-point scale, running from Very Low to Very High. This shows how closely the Risk Profile matches the fund. The Risk Profile is of course always the best match.

We also provide two kinds of information about each Risk Profile. The crudest is the Risk Level, again on a scale of Very Low to Very High, which measures volatility.

We also break down the Risk Profiles into risks from different industries, geographical regions or styles of investment, as well as its sensitivity to various well-known market indicators. The same information can be calculated for each fund.

Charges
Risk data is useful to assess the suitability of a fund, but it is also important to consider what the management charges are.

Charges can have a dramatic impact on the final value of a fund.

To that end we add a "charge rating", based on so-called Total Expense Ratios, supplied to us by a company call Fitrzrovia. This annual charge data is again scored from Very Low to Very High.

Up-front charges are not considered for several reason:

• They are variable
• Their impact depends upon the life of the investment
• The cost depends on where a fund is bought: a fund bought through an adviser will generally cost more than through an online fund supermarket.

Performance
The final leg of the ratings system is the performance measurement.

The Risk Profile provides us with a virtual benchmark tailored to each Risk Profile. Sensitivity to the benchmark is used to perform the risk adjustments that are the final ingredient of performance rating.

Does this all work?
One test is to consider what we already know about tracker funds.

A great deal of academic research and theoretical argument from the likes of Nobel Laureate William Sharpe makes strong claims for the benefits of these funds and they have been very successful in both the institutional and private investor markets.

However in league tables they never come top and their virtues can be almost invisible.

In contrast with FT Fund Ratings, FTSE All Share tracker funds appear in the mainstream UK Whole Market Sector, typically with High Match Ratings, showing that the funds are known quantities.

On charges they do very well mostly scoring Very Low or Low and on performance many currently receive a High rating.

It's not quite the whole story but it is still a much fairer reflection of the known advantages of these funds. At the same time it shows that they are only one kind of fund and that there is still room for funds of other types.

For more information on FT Fund Ratings, go to http://www.ft.com/fundratings

Or look within the ISA Special Report