Out of almost ten thousand mutual funds that are available in the market, where does one begin to choose a mutual fund to invest in?

It is sorely tempting to choose the mutual funds with the fanciest advertisements. They try to dazzle you with stellar percentages of their past performance and try to impress you with the accolades they have received from self-important publications. The truth is, past performance in the money market is not a trustworthy indicator of the future and the people who make the list of the best mutual funds crown a different top ten year after year.

In choosing a mutual fund, you must first consider yourself – your age, needs, income, and your attitude towards investing. What are your goals for the money you want to invest? If your goal is a short-term one, like needing some pocket money for a holiday trip, you should be looking at a conservative and low risk fund. Those with long-term goals would benefit much more because investors have proven that mutual funds perform better over a longer period of time. Also consider how much risk you are willing to take so you can choose which mutual fund has just the right amount of risk for you.

A mutual fund also has its fees and expenses. Some funds assess front-end loads that are charged to the investor upon buying shares. Some also have sales charges when you sell your shares at a time before they can be sold. Still others have commission percentages that go to the fund manager, financial adviser, or to the investment broker. While some lower their fees the longer you stay with them, avoid funds that impose these charges as much as possible. If choosing among similarly performing mutual funds, also compare what they would cost you annually so that you can pick the one that has the most minimal expenses. If the funds you gain raise your tax bills, it just means that you made more money so think nothing of it as you pay for it.

When investors see a mutual fund that has been performing really well in the past few months, most have a tendency to pour their money into it. As previously mentioned, the past does not always dictate the future. What you need to look for is consistency. A mutual fund showing above average performance for over a period of three, five, ten years or more is the way to go. Also, a well-performing mutual fund means that it has a good fund manager so assess the mutual fund based on this manger. If a mutual fund consistently performs well under this person’s management, then it is likely that it will continue to perform well. The mutual fund’s performance under a different manager should be evaluated separately.

Choosing from thousands of mutual funds can be overwhelming. Some people just give up and rely on a broker or a salesperson. Some get assurance from using the S&P500 index or trusting in companies such as Morning Star. However you approach it, the more knowledge you have and the more research that you do, the better your chances of picking the right mutual fund.