Best Mutual Funds

Best guide for selecting the right mutual funds

Selecting best mutual funds mean a lot more than deciding by indices and their past performances. However, you need to remember one thing that there is no quick gratification in investments of any kind. This article tells you regarding:

-How can you select a mutual fund for investment?
-Is it important to pick up companies that are performing above average?
-Is it advisable to compare mutual funds across category?

When your investment purpose is for saving for retirement, then risk minimization should be your mantra. And one of the best avenues for you to invest now is mutual funds as they have an average of 50 stocks in each portfolio for diversification and cushioning the risks. Selecting best mutual funds mean a lot more than deciding by indices and their past performances. However, you need to remember one thing that there is no quick gratification in investments of any kind.

Let us discuss the dos and don'ts of selecting the best mutual funds. These points should serve as guidelines for making decision on whether your pick is among the best in the industry or not.

Dos In Selecting the Best Mutual Fund

Draw down your investment objective. There are various schemes suitable for different needs. For example retirement plan, capital growth etc. Also get clear about your time frame for investment and returns. Equity funds are not advisable for short term because of their long term nature. You can consider money market and floating rate funds for short term gains. This equals asking - What kind of mutual fund is right for me?

Once you have decided on a plan or a couple of them, collect as much information as possible on them from different sources offering them. Funds' prospectus and advisors may help you in this.

Pick out companies consistently performing above average. Mutual funds industry indices are helpful in comparing different funds as well as different plans offered by them. Some of the industry standard fund indices are Nasdaq 100, Russel 2000, S&P fund index and DSI index with the latter rating the Socially Responsible Funds only. Also best mutual funds draw good results despite market volatility.

Get a clear picture of fees & associated cost, taxes (for non-tax free funds) for all your short listed funds and how they affect your returns. Best mutual funds have lower cost out go.

Best mutual funds maximize returns and minimize risks. A number called as Sharpe Ratio explains whether a fund is risk free based on its expected returns compared against a risk free money market fund.

Some funds have the advantage of low minimum initial investments. You can start investing even with $250 a month. This is advisable for building asset bases over a long period with small regular investments.