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Ten Questions To Ask Concerning A Mutual Fund

 
 

1. What is the fund's long-term track record?

While there is little correlation between immediate past performance and future performance, there is some. Look for a fund that has consistently ranked in the top third or quarter of its category. This consistency makes it more likely that the firm will continue the policies that attracted you to it in the first place.
 

2. Can I switch among a family of funds? Is there a charge?

Major fund providers give you the flexibility of switching from one fund to another by phone. This is convenient for those interested in short-range management of their money, and is less important to those seeking a long-term home for their cash.
 

3. What are the fund's philosophy and current holdings?

Closely examine a fund's approach to the market. You may be concerned about investments in certain industries or countries, or you may find the management of the fund too conservative or aggressive for your comfort.
 

4. Can I write checks against the fund?

This convenient feature makes it easy to remove money from a fund. Some funds charge a per-check fee, and others don't permit this at all.
 

5. Is the fund leveraged?

Funds that borrow money to invest can post spectacular gains during bull markets. On the other hand, this strategy can virtually wipe out an investment if the market reacts poorly. Be aware of the risk to your principal as well as your interest.
 

6. How often, and in what form, are reports generated?

If you're concerned about keeping very close tabs on your investment, ask to see sample reports.
 

7. Is the fund registered with the SEC?

While overseas funds may occasionally post tremendous profits, in the long run the oversight provided by the SEC provides an important safety net.
 

8. Is there a redemption fee or a management fee?

Some funds charge you to redeem your shares. You should also check to see if the fund is liquid -- making it easy to redeem your shares.
 

9. What is the load (fee) for purchasing shares?

Some funds charge an up front fee (a load) for buying into a fund, while others don't. This can dramatically affect your real return.
 

10. Does this fund match my investment objectives?

Spend some time to determine your investment goals, then find a fund or funds that match them.
 
 
Morningstar is known to be the beacon organization for information on mutual funds. Its 32-page, bi-weekly updates, Morningstar Mutual Funds, cover more than 1,200 mutual funds. The analysis provided includes a history of the fund's performance, information on fund managers, ranking against other funds, quarterly returns and top holdings. Morningstar also adds its own rating of risk and return so that the reader can analyze potential investments.