How To Find A Good Mutual Fund

In the world of investing, there are all sorts of mutual funds — from index funds, to actively managed — covering the spectrum of size and orientation. Now no one wants to invest in a mutual fund that loses money on a consistent basis or is charging you a lot of bucks for below average market returns. So the question here is, what makes a mutual fund “good”? What makes a fund worth the money that you are going to put into this investment? Here are a few characteristics you’d like to check out when shopping for a mutual fund:

Attributes Of A Good Mutual Fund

1. The fund’s mutual fund manager has a strong reputation.
When you invest in an actively managed mutual fund, you’ve got to check out the guy or gal who’s at the helm. This fund manager’s goal is to outperform the market and to come out on top of the competition. When the fund is a winner, investors tend to pour more money into that fund, possibly chasing returns (or hoping they’d receive the kind of returns expected of a fund with a great performance record).

You’ll know a mutual fund is a great choice if the fund manager controlling and managing it has a great reputation and a good track record. If you read up on some financial publications, these funds are written up front and center as top favorites.

2. The mutual fund has low expenses and low overall costs.
Check whether the mutual fund is a no load and has no 12 B-1 fees. Why bother with loaded funds when you can now own a well performing no load fund that’s so much cheaper to own? Take a look at the expense ratio of the mutual fund. This is what tells you how much it costs each year for you to invest in the fund. Furthermore, you can compare this expense ratio to the cost of other funds.

3. The mutual fund is a no load.
If you insist on owning a load fund, then it better be out of this world! Load funds are those that you’ll have to pay extra for to either buy or sell. Typically, these funds justify their costs because they claim that they (can) produce much higher returns than their index or no load counterparts. But that isn’t always the case. More often than not, buying a loaded fund simply means you’re paying the fund more for the same or lower returns you’d get by simply sticking with no loads or index funds.

4. The fund is a good size.
What does this mean? Well, some funds can actually be too big for their britches. Once a fund gets very popular, say because of their great reputation or a series of strong years where their returns beat the market, you’ll expect to see a flock of new investors sign up for it. But their popularity can spell the ultimate demise of their success. If the fund gets too big, they become much more unwieldy, so managers — if they’re good! — will typically close such funds to the public. So to get into a great fund (and to continue owning one), keep your eye on its size!

5. The fund is well awarded.
Check out Smart Money, Kiplinger’s, Barron’s and Money Magazine for lists that show which mutual funds make the grade. Scour the lists for common names: this can be your first step at determining which funds should belong in your portfolio. I’d use them as a great screening tool.

Where To Find Good Mutual Funds?

Where do you encounter these great funds? Again, check out financial publications (see your local library for them) and online resources like Motley Fool (fool.com), INO.com and Morningstar.com for ideas. Other places to go? Your friendly neighborhood online broker or mutual fund company — many of them host mutual fund screeners on their sites which you can use for free.

Keep in mind that there is no single mutual fund that can guarantee good performance all of the time. So it’s up to you to keep an eye on your portfolio and your funds to ensure that they are performing according to your expectations.