The Caveat of Mutual Funds
Like day trading stock, venturing into mutual funds is easy if coupled with precise information and adequate exposure.
The first thing you need to know about mutual funds is that there are literally thousands of them that can’t even approach the returns of their related sector indexes. Additionally, many do not yield good long-term returns required to justify high fees. Thus, you must be equipped with some basic rules of thumb when purchasing a mutual fund of any type.
Here is a set of caveat:
1. Purchase only no-load funds.
2. Longer Fund Manager Tenures generally indicate more stable funds.
3. Beware of funds which have inexperienced managers.
4. Beware of funds with low total assets.
5. Beware of the so-called high-yield funds.
6. The industry allows funds with 12B-1 fees of up to 0.25% to be called ‘no-load’ funds. A true no-load fund has no 12B-1 fee. Be sure that the 12B-1 fee plus the total expense ratio do not exceed 1%.
7. Look for funds with low expense ratios.
8. Mutual fund rankings with time periods of less then 5 years are completely spurious.
