As the popularity of mutual funds as an investment vehicle has grown over the years the number of mutual funds has ballooned into the thousands. Mutual funds as a whole are very helpful to the individual investor, but not all mutual funds are created equal. In fact, there are huge differences in the way mutual funds work and how they perform over the long run. What kind of things should you look for in a top mutual fund?
5 Attributes of a Top Mutual Fund:
- Consistent outperformance- The number one thing an investor wants from a mutual fund is consistently strong returns. Don’t look for funds that have hit it big in the last year, rather look for funds that have continually outperformed their peer group as well as the broader market over a long period of time. Every mutual fund will go through its temporary slumps, but one that shows great consistency over long periods of time should be considered one of the best mutual funds out there.
- No load mutual funds- Simply put there is absolutely no reason to invest in the current environment when there are mutual fund loads. In the past loaded mutual funds may have been able to justify the load by their outperformance, but now there are so many great no load mutual funds available that there is no excuse for getting crushed by the load.
- Management who sticks around long-term- Finding the best mutual fund managers is one thing, but getting them to stick around for a long time is even tougher. A mutual fund that has had the same manager for a long time and continually does well is a huge plus. Funds that switch managers too often are unlikely to be as consistently strong.
- Reasonable expenses- All mutual funds will have some fees associated with them, as well they should since there must be some work done to pool all that investment money and research those stock picks, but high expenses are unnecessary. A good way to gauge if a mutual funds expense ratio is too high or not is to look at its peers and how their expenses are. Finding a low expenses mutual fund can mean wonders to your bottom line over time.
- Transparency and high ethics standards- There have been quite a few mutual fund families that have been found to be dealing in a manner that is against the law, which is obviously unacceptable. Mutual funds aren’t above the law by any means. Also, the mutual fund should be transparent and the managers of the fund should make their investment style and objectives very clear to all prospective investors.
The five characteristics listed above are not too much to ask of a mutual fund. There are definitely multiple funds that fit the criteria listed above. As informed investors you must find the best mutual funds in order to profit in the long run.
Aaron K. Smith is a freelance writer with experience working in the mutual fund industry and writing about investing and the stock market.
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