How to Distinguish Among Different Mutual Funds

Thousands of mutual funds are available to investors. Learn how to compare them.

Instructions

Difficulty: Easy

Things You’ll Need:

• Prospectuses
• Publications by Morningstar

1. Visit your library's business section and ask the reference desk for publications by Morningstar, which tracks the performance of thousands of mutual funds.
2. Look up individual funds of interest.
3. Find out what type of fund you are dealing with. Funds generally fall into these categories: balanced (a broad mix of investments); income (focuses on earning dividends); growth (focuses on immediate capital gains); dual-purpose (invests equally for income and capital gains); and bond (debt instruments).
4. Compare the fund's historical returns with market indexes such as the S&P 500 and with the performance of mutual funds in the same peer group; for example, large-cap growth and income funds.
5. Determine whether the fund is a load or no-load fund. Load funds charge up-front fees to investors; no-loads don't.
6. Determine the extent of other fees charged to investors.
7. Compare the total fees with those charged by other funds.
8. Read the prospectuses of the funds you find most interesting. These are available from the mutual fund companies.
9. Ask other investors about their experience with various funds and the funds' customer-ervice representatives.

Tips & Warnings

• Make sure a mutual fund's goals match your goals before you invest.
• Decide how much you can risk before you invest.