There are a lot of things to consider when buying a mutual fund.  Remember that you are giving your money to someone else to invest for you...  And this person (and their company) needs to be paid.  You want to make sure that you are getting your money's worth.  Like stocks, mutual funds all have a ticker (but 5 letters long, like EUEYX) and you can look them up the same way at sites like MorningStar.com and Kiplinger.com.

Here are some big things to look for in a mutual fund:

Management:
This is the person you are putting your trust in!  Check to see HOW LONG this person has been managing the fund and compare this to the fund's performance history.  For example, if you check a fund's 10-year performance and see that it was really bad for the first 5 years...  And see that the current manager came on board 5 years ago and things really got better, then you've got a good manager.

One thing to avoid is a fund that's been doing really well...  But, just got a new manager.  This fund could be in for some big changes and they could all be bad.

Look at the manager's education and experience... and look at how long he or she has been in charge of that fund.

Loads and Fees:
As we said before, you'll be paying the manager and his or her company for their management time and expertise.  Different funds have different ways to charge these fees which are called "loads."  Here are the basics:

Front Load Mutual Fund =  This may be called an "A share fund" (or will have an "A" at the end of it's name.  This means that you pay a fee upfront for buying into the fund.  It's a percentage of the amount you are investing -- sometimes up to 8.5%.  Let's say the front load is 5%...  If you invest $1000, you'll lose 5% (which is $50) right away.  You're really now investing $9550.  This is why it's important to keep the fund for a few years...  You'll need to have the fund long enough to make up for your initial 5% loss.

Back Load Mutual Fund =  This may be called an "B share fund" (or will have an "B" at the end of it's name. This is when you pay a fee when you leave the fund.  And, this time, it's a percentage of how much you have at the end -- not your initial amount.  It's called a liquidation fee.  So, let's say your back load is 5%... and you initially invested $1000... If you made 10% while you were in the fund, you'll have $1100 when you leave...  Your fee is 5% of $1100 which is $55.  The nice thing about back loads is that their percentage usually decreases the longer you own the fund...  If you have the fund long enough, the load will disappear altogether.  There is often a standard 1% fee with this type of fund.

Expense Ratio:
It does cost money to run a mutual fund...  There's the manager's salary, the cost of the office space, legal fees...  Every time a stock is purchased or sold in the fund, all those fees have to be paid...  All sorts of things.  The expense ratio is the fund's expenses divided by the funds assets.  This ratio can go up to 4% a year!  Up to 2% is more common though.  Most experts recommend that you look for funds that are under 1%.

Turnover Rate:
A high turnover rate often leads to a high expense ratio.  The turnover rate is how often stocks within the mutual fund are purchased and sold.  These transactions each cost money and, if a stock is sold at a gain (it made money), the fund will have to pay taxes on the gain.  Of course, this cost always trickles down to you.  It's difficult to put a recommended number on this one since you really have to compare the turnover rate to the overall success of the fund.

Risk:
Of course, take into consideration how risky the fund is.  First, you can go by what type of fund it is...  For example, if it's a foreign fund, then by nature, it's risky.  A site like Morning Star will tell you how risky a fund is compared to other funds of it's type.  So, if you're looking at a foreign fund and it gets a "low risk" rating that's a low risk for a foreign fund -- which is still pretty high.  Get it?

Sharpe Ratio:
The Sharpe ratio compare the return to the risk -- the higher, the better.  A high Sharpe ratio means that you a making a lot of money considering how much risk you are taking with your money.  A low Sharpe ratio means that you are taking a big risk and not getting much in return.  Whether or not, this measure is reliable depends on who you ask.  The reason is that the ratio depends on the time frame in which the computation is based -- so, it could be using old numbers that don't paint a good picture of what's happening today.

12b-1 Fee:
This fee is for the advertising and promotion of the fund.  I'm sure you've seen lots of commercials on TV... and on this site!  Hey, someone's got to pay for all that!   And, if that fund has a 12b-1, the person who's paying for it is YOU!  This fee is usually pretty hidden and can be as much as 1%.  Not all funds -- even those who advertise -- have this fee, so check it out and keep it in mind when making your decisions.

My method is to go to Morning Star and look up their 5 star funds...  This is a great place to start your search.  Here is Morning Star's Fund Screener.

You can search for good mutual funds using our Google "safe search" option.  Or you can search for a different topic on Finance FREAK.  A new window will open with your results.

	Web financefreak.com