How to Invest in Mutual Funds

If you do not have the time devote to an active stock investment, but would still like to take advantage of the portfolio diversification benefits of owning stocks, then investment in mutual funds is the vehicle for you.

Below is a how-to-guide for investment in mutual funds. Evaluate your list according to the following: accessibility, customer service, exit strategies, rate of return, and management integrity.
1. Shop around. Ask your bank if they have mutual funds products. Whether they do or
don’t, ask for recommendations. Your bank knows a lot of other banks and
financial institutions which offer the same product.

2. Compare and contrast the choices. Analyze the relative performance of the banks
and mutual funds companies in your list. The following can be used as criteria.
• Accessibility of their product – how much is the minimum investment
requirement? How much is the minimum additional funds to the account?
• Levels of customer service – how fast do client concerns are addressed? Is
there a team dedicated to answering investment questions? Do they provide
investment advice to small investors?
• Exit options – what are the restrictions for fund withdrawals? How much are
the charges? Can funds be withdrawn anytime?
• Rate of return – what s the historical rate of return to-date? Last year? 2
years? 5 years? Are the returns consistent with or above the industry?
• Integrity of managers – are the fund managers trustworthy? Is the investment
composition of the fund aligned with its objectives and conditions?

First, eliminate the mutual funds that have very high initial investment requirement. Say Mutual Fund X has an initial investment requirement of $100,000 while you only plan to make an initial investment of $1,000. Second, you would want to be in a company that you can afford, but still feel valued no matter what your net worth is – after all, this is an investment in mutual funds not private banking. Then, your next criterion is whether the fund allows you to take out your money anytime. No matter how accessible the fund is and how accommodating the staff is, if you can not withdraw your money when you need it, then it is not a good choice.
After paring down your choices to the most accessible friendly funds, then you have to evaluate the rates of return. Choose the funds that will give you most value given your preferences. After which, check management integrity – although a fund may report a high return, if its management team is less than exemplary, then its reported return is suspect.