How to Learn More About Mutual Funds

Mutual funds are the darlings of the new investor—they're easy to buy, easy to sell and are generally low risk. Before you jump in, however, remember that you're dealing with real money—your money. Sit back down and learn a little more about this type of investment.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Information on investing: books, Web sites or newspapers such as the Wall Street Journal
• Paper and pen for taking notes
• Dictionary of investment terms

1. Visit your library or bookstore for investment guides and a dictionary of investment terms. These will help you make sense of a fund's prospectus, a key tool in evaluating whether a fund is right for you.
2. Understand the basic definition of a mutual fund. It is a group investment tool in which a collection of investors pool their money. The broker or fund manager uses the money to purchase a collection of stocks, bonds or other investments. Fund earnings, minus any broker or manager fees, are dispersed among the investors relative to the size of their investment.
3. Determine the type of mutual fund in which you are most interested:
   • Equity funds (investments in stocks)
   • Capitalization funds (investments in private companies)
   • Bond funds (investments in bonds)
   • Money market funds (short-term debt investments)
4. Learn how to read a prospectus. The prospectus tells you of which stocks the fund is comprised, past earnings, earnings forecasts, company information and the expense ratio.
5. Ask your bank if it offers a mutual fund and request its prospectus.
6. Join a mutual fund forum or investment club for valuable tips and insights from other investors.
7. Ask friends, neighbors and acquaintances about their mutual funds.
8. Acquire the prospectus of each fund about which you've heard. Compare dividends and costs and get an idea of what these numbers look like.
9. Find a mutual fund manager or brokerage firm with which you feel comfortable. Set up an appointment to ask some basic questions and find out more about their mutual funds.

Tips & Warnings

• There are plenty of books and Web sites geared toward beginning investors. Don't pay someone else to do research you can easily do yourself.
• Look for no-load mutual funds—these funds don't charge fees for buying or selling the fund.
• Not all mutual funds are created equal; some focus on environmentally friendly companies while others may make profits their bottom line. Determine which factors are important to you as an investor.
• Like all investments, mutual funds may lose money. Don't invest money you can't afford to lose.
• Beware of front- or back-load mutual funds, which charge extra fees.