How to Choose a Mutual Fund Family
Mutual funds are part of a family of funds created by one company. You might get break points, smaller fees, on the money invested if you keep your funds in the same fund family. 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.
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Instructions
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Check for asset classes. The fund family may have 100 funds and yet not have the three main asset classes. Stocks, bonds and cash or fixed investments are necessary to create a good portfolio.
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See if a fund family has all types of stock funds, both U.S. based and international. No particular types of stocks perform well all the time. Small cap growth funds may perform well under different conditions than a large cap value fund. 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.
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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.
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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.
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Look for fund families and companies that "a wide variety of options, low fees, no loads and most importantly, a great reputation," advises ABC Stock Investing. No load funds can be a good choice, but if you have to pay a fee, and yet make more money, the fee is not a bad thing.
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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.
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Tips & Warnings
A good mutual fund family has large, medium and small caps of both value and growth stock. "Cap" 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 all things are equal and you are having a difficult time judging between two fund families, ask about each fund's selection of sector funds. This can be a final tie-breaker.
Check with an investment representative at a mutual fund company for 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.
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