Choosing The Right Mutual Fund

If you are considering buying a certain mutual fund, there are two main things you need to take a look at, the prospectus and the fund rankings.

The prospectus is usually available at the company's website, if they have one. If they don't, you can contact the company and ask them to send you one. If you're using a broker, they should be able to provide you with the prospectus of any company you are interested in.

The prospectus will tell you important information about the fund, such as it's investment objectives, fees and charges, and its main holdings. It will also tell you the fund's performance over a period of time, which is a good indicator of how solid the fund's earnings potential may be.

The fund rankings are the ratings given to various fund companies by rating services. The main ratings companies are Morningstar, Lipper, and Value Line. These companies base their rankings on risk vs. return. They are compared with other similar funds within the four main groups of funds - taxable bonds, municipal bonds, US stocks, and international stocks.

The ratings will give you a basic idea of the risk involved with a particular fund, especially compared with other funds that are similar. It will also give you an analysis of how good the earnings potential is for a particular fund. Using these rankings, you can compare several funds that you are looking at, or use them to find new funds that you might order a prospectus from. Keep in mind that you might want to view the rankings for the fund you are interested in over the last several months, or even years. This might give you a more accurate idea of the long-term stability of the fund.

Choosing the right mutual fund is actually not a difficult task. You just need to make sure you choose a fund that fits your investment goals and has a good track record. By checking the rankings with the various ratings companies, like Lipper, and carefully reading the prospectus of any fund you are considering, you can choose the fund that meets your specific goals.