How do you go about choosing a mutual fund that's right for you?

   Firstly, choosing a mutual fund solely on the basis if past performance does not work. That little statement which all funds put at the bottom of all their performance tables that says: 'past performance is no guarantee of future results' ... is quite correct.

   Some things to keep in mind when choosing a mutual fund are:

   1. Choose funds that have no loads. This will probably be hard to do if you invest through a financial planner or broker. They will get paid some how. If not directly by you then by the fund. Then the fund will get it out of you ... some how.

   2. Look for funds with low expense ratios. The total of all management, administrative and other fees should be charged at below 1% of the funds assets. The expense ratio is also referred to as the MER (Management expense ratio).

   Expense ratios can range from 0.2% for an index fund up to 2% for a fully managed fund. The average for managed equity funds is about 1.5%. Specialty funds and international funds tend to have the highest MERs.

   There is no correlation between high MERs and high returns.

   3. Think about choosing a mutual fund with a low turnover of investments. Turnover is a measure of how long a fund holds on to a stock before selling it. The longer stocks are held the lower the costs of trading (just as with individuals there is a brokerage cost whenever a stock is bought or sold). Also, capital gains taxes are lower when stocks are held for longer than a year.

   Turnover for index funds can be as low as 5%. The mutual fund average is around 80%.

   4. Another important consideration in choosing a mutual fund is the length of time the fund manager has been at the helm. This is the piece of information about the quality of the manager that relates to the funds performance. If a fund has been performing very well for a period of time then the fund manager leaves it could signal a likely change in performance. Different fund managers have different performances. They are not all equal. While some may be worth their high fees, others manager to do no better than you could do yourself with a list of investments and a dartboard.

   5. A consistent proven track record can bode well for future performance even though we all know "past results do not guarantee future performance". This consistent performance ties in with the previous point about the length of tenure of the manager.

   6. The investment philosophy of the fund manager needs to be in line with your comfort level. Only you can decide how comfortable you are with an aggressive manager vs a very cautious one, a volatile fund with high highs but low lows vs a stable fund with much less variation in return.

   Choosing a mutual fund is not easy when there are so many to choose from - over 160,000 of them. The task is made much easier when you have a shortlist to start from. Can you imagine how much easier it would be if you were choosing a mutual fund from the world's top 20?.

You are here:
Choosing a Mutual Fund - 6 important things to consider before making your decision to invest in a particular fund.

Mutual Funds - An explanation of what they are.

Mutual Fund Investing - How funds make money, how you make money from them, explanation of distributions and some special dates.

Offshore Investing Mutual Funds - an outline of why offshore funds beat all, and a bit about taxation.

Advantages - a discussion of the advantages and the disadvantages of these funds.

Types of Mutual Fund - a listing and explanation of all the different types of funds onshore and offshore.

Offshore Investments - how to go about making your offshore investment through an offshore trust.

Understanding the Mutual Fund Prospectus - an explanation of some of the main things to look for when reading a prospectus.

Compare Mutual Funds - how to analyze what the 1 year, 3 year, 5 year and 10 year returns mean, and how to compare funds with those figures.

Mutual Fund Managers - A very comprehensive list in alphabetical order of many of the managers of mutual fund families around the world.