Mutual Fund Investment–Tips on How to Choose a Fund

Past performance of a mutual fund will definately attract a potential investor but it takes more than the fund’s past performance for one to be successful with his mutual fund investment.

As a matter of fact, a fund’s past performance do not guarantee future success since there are several factors that will affect it over time. Some of these factors include taxes, fees, risks, age and size of the fund, and changes in the operation of the fund. Because of this, it is recommended for you to consider factors beyond the past performance of the fund before investing in mutual funds.

Here are some tips which will help you make an informed decision regarding a potential mutual fund investment you will make.

First is to read the fine print and scrutinize a mutual fund investment’s fees and expenses. Thus, you have to be aware of how these fees and expenses will affect your mutual fund investment in the long tem. You can use a mutual fund cost calculator to make things easier for you by letting it compute how the costs of various mutual funds can affect your overall returns.

Investing in mutual funds also has an effect to your tax bill. Every time a fund makes a capital gain distribution to its shareholders, additional taxes have to be paid.

You should also consider the size and age of the fund before investing in it. Investing in mutual funds require you to check how long the fund has been in existence. Usually, small investment funds or newly created ones have excellent short-term performance. This is due to the fact that this particular fund only invests in a small number of stocks and a few good stocks will have a significant impact on their overall performance.

To get a better view of a fund’s performance, observe how it performs over an extended period of time and see if it has done well during the ups and downs of the market.

Lastly, take into consideration the risks the fund takes to give you the returns in your mutual fund investment. You can do this by reading the fund’s shareholder report so you have an idea on how they invest your money and the risks associated with it. Here you can see if the fund you will be dealing with will take risks beyond your comfort zones. However, it is to note that all investments do deal with risks.

On the overall, the success of your investments really depends on how much you have diversified your portfolio. Investing in mutual funds is only one way of diversification. To maintain a minimum risk with regards your investments, you have to maintain a balanced portfolio.

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