A Mutual Fund Guide

To assist you to find the best mutual fund!

This mutual fund guide will assist in comparing mutual funds when choosing the best mutual fund for you. Treat it like a mutual fund checklist.
Points to Consider ...

Keep in mind that there are many types of mutual funds. Check out which one(s) suit your requirements.

Always give the fund prospectus a thorough read so that you can work out what you are letting yourself in for.

Pay particular attention to the charges or fees you will incur each year and recognize that there are risks specific to mutual funds.

Find out how often the fund manager turns over the stock in the fund (the churn rate). If there is a large turnover of stock then consider this carefully as this can increase your costs over time.

Look at the performance history of the fund to identify the worst performing period and ask yourself if you can handle that level of volatility. Make sure that there is a performance history, preferably at least 10 years.

Look at the consistency of performance of the fund. One 'lucky streak' year may bias the overall performance, even over a ten-year period.

As a mutual fund guide, look at the size of the fund. Funds that get very large may have trouble in identifying suitable investments large enough to soak up new cash coming into the fund. Warren Buffett has referenced this problem in relation to Berkshire Hathaway.

Read the fund manager's reports as the 'tone' of the fund manager's language can be very revealing. Look for managers who are prepared to discuss their wrong calls, and who don't try to paint too optimistic a future for the fund.


To Conclude ...

As two final comments, recognize that many 'active' fund managers have trouble beating the index and commonly under-perform it.

Investing in an index fund will at least ensure that your fund's performance will match the index.

While you will be paying less fees when using index funds, keep in mind that what you will get is average company performance overall at the average price of all the companies in the index.

If you want to invest in high performance companies at low prices, which I do, then consider magic formula investing.

Also remember that for those value investors among you who are time poor, there are mutual funds that follow a value investing approach.

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