How to Select a Mutual Fund Family

When considering a mutual fund investment, many investors will attempt to find the best historic fund performance at the lowest cost. They do this by researching through online services, such as Morningstar, which will display a number of funds based on the search criteria. These investors will then usually open a brokerage account and have the broker buy into the mutual fund. They do this so that they can invest in particular funds, regardless of the fund family or company, and all funds can be held and tracked in by the brokerage firm.

The average investor seeking mutual fund investments will not normally use the brokerage firm approach. These investors will select a mutual fund company or family, and invest in the funds offered by that company. They do this for ease of management, unwillingness to research more than one mutual fund company, and simply being comfortable knowing all their money is in one place. Right or wrong, most average investors pick a mutual fund family for their investments, and then the specific funds, rather than the other way around.

Considerations in Selecting a Mutual Fund Family

While an investor can spend hours picking apart every detail about various fund families, the decision should come down to several factors: Size, Load vs. No-Load funds, fees, reputation, and variety of funds.

  • Size of family – there are many small firms that offer excellent fund choices. However, with large firms, an investor can be fairly sure there are good trading practices and controls in place, the firm has weathered past market disruptions, and the firm will be around well into the future. The large firms also have good backup personnel should a portfolio manager decide to leave the firm.
  • Load vs. No Load – a Load fund imposes a sales charge of up to 4% of the assets to enter the fund. Some funds impose a redemption fee when you leave the fund. These fees go to pay the commissions of the salespeople, and possibly for giving you advice on when to enter or exit a particular fund. No-load funds have no sales or redemption charges.

The average novice investor should invest in No-Load mutual funds. Most of these investors will be selecting large conservative funds and there is no good reason to pay a sales charge for entering these funds. There are a number of No-load mutual fund families that have been in business for many years.

  • Fees – all mutual funds charge annual fees. These could range from .5% to 2% of assets. In general, an investor can expect to pay 1% to invest in large diversified funds. Specialty funds, such as gold funds, may have higher fees. There isn’t a great difference in fees between Load funds and No-load funds.
  • Reputation – the reputation of a mutual fund family is extremely important. This reputation has been earned based on customer service, fair play practices, concern for their clients, ethics, and discipline in determining and executing the investment objectives of each fund. If a firm’s reputation becomes tarnished, investors will soon begin withdrawing their funds.
  • Variety of Funds – since the average investor wants to deal with only one mutual fund family, there needs to be a good variety of stock, bond, commodity, real estate, and money market funds. A good mutual fund family will have over 50 fund offerings.

Selecting a Mutual Fund Family

Of the considerations above, the major determinants should be size, load vs. no-load, and reputation. When looking for one fund family for the long term, investors would do well with large, well established, reputable, No-load mutual fund families.

Fees are important, but there is not a great difference in fees among the large firms. Variety of funds is normally not an issue with the large No-load mutual fund companies.

Two firms which meet these criteria are T. Rowe Price and Scudder. From here, an investor should do an internet search of each firm to find out as much information as he can. Forums will quickly give an investor a flavor for any issues that exist at each firm. Look for the overall flavor of remarks in general since there will always be some blogger who does not like a firm. Once you are comfortable, you can contact them with confidence that they are a good choice for investing your money.