Once you have developed your savings account to the point where it is time to start investing in the financial markets, one of the first places most people look is at mutual funds. This is for good reason, as mutual funds tend to be one of the safest areas to put your money with the expectation of long term capital appreciation. But, of course, not all mutual funds are created equal and there are some general rules that should be followed so that you can make sure you are getting the best deal for your investment Dollar.
Watch Your Fees
All mutual funds charge fees in exchange for granting access to a well-diversified portfolio of conservative investment assets. Many investors fail to pay much attention to how much exactly is being charged, and this is one of the worst mistakes that can be made. First and foremost, there should be no sales charges for the transaction. This means no contingent deferred sales loads, no front loads, and no level loads. These are some of the ways mutual fund sales managers collect additional fees, but any fund that conducts these practices should be avoided.
The next factor to watch is the fund’s expense ratio, which is present in all funds but should never exceed 1%. All funds are going to need to charge you some fees in order to actively manage your money and look for new opportunities. This is just the cost of doing business. But any fund that comes with an expense ratio of 1% or above should be immediately avoided as there are much better deals out there.
Make Sure The Fund Is Conservatively Managed
The next area to watch is the turnover rate for the assets included in the fund. You do not want to get involved in a fund that comes with a turnover rate of more than 50%. Even that is on the high side, as there are plenty of funds that come with turnover rates of around 20%. Remember, investing in a mutual fund is not day trading or a get rich quick scheme. Instead, you are looking for a conservatively managed set of high quality assets that come with preferable turnover rates.
Last, make sure that the fund’s assets are fully invested. If you were willing to leave your money on the sidelines, you might as well just leave it in a bank where you can at least
earn some return in the form of interest. Investment policy at your mutual fund should be associated with cash reserves that are close to 0%. This way you can ensure that your money is being actively managed and that your potential for strong returns is not being hurt by the fact that your money is not even at work in the market.
In all, these are many of the factors what must be considered when choosing any mutual fund. There are many choices out there, so do not settle for any fund that does not match this set of criteria.