How to Choose a Mutual Fund Family

Mutual funds are part of a family of funds created by one company. It is important to use the same fund family when investing to get break points, smaller fees, on the money invested. Different asset classes and types of funds allow you to tweak your investment for the market conditions, without new sales charges. You can choose a good mutual fund family by looking for a few key elements.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Information on the fund families

1. Check for asset classes. The fund family may have 100 funds and yet not have the 3 main asset classes. Stocks, bonds and cash or fixed investments are necessary to create a good portfolio.
2. See if they have all types of stock funds, both U.S. based and international. No particular types of stocks perform well all the time. Usually small cap growth funds will perform well under different conditions than a large cap value fund. In order to balance a portfolio you need to have a little of everything. You won’t make an overnight fortune, but you won’t lose one either.
3. Investigate the selection of bond funds. Different types of bond funds perform differently, just like the stock funds. A high yield bond fund tends to perform the opposite of a long-term government bond.
4. Look at the 10-year return. If very few funds of a specific asset class have a 10-year return find out why. Many companies that have poor return histories will drop old funds and create new ones so the returns look better.
5. Be aware that a fund may have a higher yield even though there are fees. No load funds can be great but if you have to pay a fee, and yet make more money, the fee is not a bad thing.
6. Look for ratings. Several companies rate mutual funds. Ask the company representative how many 4 and 5 star funds the family of funds contains. When you choose a mutual fund family this is important information.

Tips & Warnings

• A good mutual fund family has large, medium and small caps of both value and growth stock. Caps is an abbreviation for capitalization or how much money the company has. It also has bond funds that reflect a variety of levels of credit worthiness of the bond issuer and the length of bonds. The fund family should also should have taxed and tax free bonds and money markets.
• If you choose a mutual fund family with various types of funds and good returns, you can move the funds around freely without new charges. There may be taxation on growth.
• If all things are equal and you are having a difficult time judging between 2 fund families, ask about their selection of sector funds. This can be a final tie-breaker.
• Check with an investment representative or use the website in resources for Morningstar to get information on various fund families.
• If a representative suggests you move your funds to several different fund families, ask about breakpoints. Try to stick to one fund family.