When you’re in the market for a mutual fund, you want to purchase a fund that will give you the most bang for your buck. To find top performing mutual funds, you need to do your homework. It’s not as simple as walking into a broker’s office and buying the first mutual fund that the sales agent recommends. To find the top funds, you need to look at many different factors to determine whether the purchase you’re about to make is indeed a good one.
After all, you wouldn’t plunk down tuition for a university based on an advisor’s recommendation without researching the place yourself or buy a new car without taking it for a test drive, right? Get a few key points clear if you want to discover whether the mutual fund you’re about to buy really is a top performer.
Find Out about the Fund Manager
When you’re whittling down your short list of mutual fund picks, the first thing you need to do is check out the street cred of the fund manager. What is the manager’s track record? How have the funds he’s in charge of fared over the long-term? This is important because the fund manager picks the stocks that will make up the mutual fund. He’ll decide which stocks to cut loose and which to keep, so you want to ensure the mutual fund you decide on is in good hands – you don’t want to invest your hard-earned dollars in a fund with sub-par or risky management.
Pick a No-Load Fund
Many mutual funds tack on fees and other charges when you buy them. Oftentimes, these fees are levied for each share class that the stocks in the fund belong to, so the charges can add up – fast. The fees will cut into your overall return, but luckily there are no-load funds that you can purchase in order to effectively sidestep these unnecessary charges. The tradeoff is that the initial sales charge is higher when you buy the fund, but you’ll make up the difference in the long run when you’re earning fee-free returns.
Examine the Turnover
A mutual fund’s turnover is the amount of time the fund keeps particular stocks it buys. A mutual fund has a low turnover if it trades infrequently and keeps stocks for longer periods. A fund encounters costs every time it buys and sells stocks, so opting for a low-turnover mutual fund is better than selecting one with a higher turnover rate.