Not all mutual funds are made equal; some great ones have historical returns which are consistently higher than the others. Funds managed by legendary financial gurus such as Peter Lynch needs no introduction. There are also some funds which gives only average and below average yearly returns. Hence, it is certainly important to know some mutual fund basics even before venturing into any investment in mutual funds. It is imperative that the task of choosing the right mutual fund is carried out first by checking out and asking questions on the background of the mutual fund company, their track records and experience.
Some suggested questions that are listed below will help to guide you in checking out on the basics of the mutual fund that you may be interested in and in making the decision to choose the right mutual fund company to invest in:-
1. Check out if the mutual fund company has been registered with the National Securities Commission.
2. As mentioned above, check out how long the mutual fund company has been in business and its historical track records. Check out with the mutual fund agent on the performance benchmark for comparison against other mutual fund companies. This will help to ensure that the mutual fund that you are choosing has a good track record.
3. Check out the mutual fund investment strategy, such as its asset allocation strategy and the companies that the mutual fund has invested in. One of the main reasons for investing in a mutual fund is investment diversification. It will certainly defeat your purpose if the mutual fund is only invested in companies related to only one or two industries.
4. Check out on the different types of funds run by the mutual fund company that are available for you to choose to suit your risks profile. Some funds may be focused on only growth stocks and therefore may be too aggressive and volatile for you.
5. Check out on the mutual fund fees charges imposed, such as sales charge, administrative and management fees, etc.
6. Check out on the”cooling off period” given to investor to reconsider the decision after the initial investment in the company. You may for some reason change your mind and want a full refund off your initial investment.
7. Check out on the procedure for redeeming your investments, especially how long the period after your request for redemption before you can get back your money. You may need your money urgently.
8. Check out how regular you will receive your statement of your investment status. The key to successful investment is the regular monitoring of your investment.
Lastly, ensure that you read and vet through the company’s prospectus. The basics of the mutual fund company can be found in the prospectus of the company. In addition to this, the answers by your mutual fund agent to the questions above can help and guide you in your decision to choose the right mutual fund to invest in.