Five Questions to Ask Before Investing in a Mutual Fund

Updated: May 11, 2022

How do you choose the best mutual fund? Can you just select the top-performing mutual fund and invest your money there?

If you’re hoping to invest in a mutual fund, then here are five questions that you need to ask your investment solicitor or mutual fund agent. Knowing the answers to these will surely help you in your decision.

1. What is the fund’s objective?

All investment funds have objectives. Some mutual funds will have capital preservation as their goal, while some have growth as their target, and others can have a combination of both.

Ask for the fund’s prospectus from your agent, and have them explain the investment strategy. And then make sure that the fund’s goal matches your personal financial objectives.

For example, if you’re investing money that you want to grow significantly in the future, then avoid mutual funds whose objective is capital preservation. Because your money won’t grow much in there.

Moreover, check if its investment strategy is acceptable for your risk tolerance. If you’re risk-averse, then don’t invest in a mutual fund with an aggressive investment strategy.

2. How’s the past performance of the fund?

It’s a fact that an investment fund’s past performance is not a guarantee of future results. If a mutual fund had 40% gains last year, it doesn’t mean it will have as much returns again this year. So don’t be misled by those numbers.

You should ask for the past performance to use it as a point of comparison with other funds. This will help you see, which funds are consistent in giving good returns with respect to other funds.

For example, check out these top performing Equity Funds as of the first quarter of 2017:

Based on Year-To-Date Return

  • ATRAM Alpha Opportunity Fund – 7.73%
  • Philequity PSE Index Fund – 7.28%
  • PAMI Equity Index Fund – 7.19%

Based on 3-Year Return

  • Philequity Dividend Yield Fund, Inc. – 5.48%
  • Philequity PSE Index Fund – 4.57%
  • Philippine Stock Index Fund – 4.51%

Based on 5-Year Return

  • Philequity PSE Index Fund – 7.63%
  • Philippine Stock Index Fund – 7.57%
  • ATRAM Philippine Equity Opportunity Fund – 5.05%

From observation, the Philequity PSE Index Fund is consistently at the top 3 in all periods. Thus, it’s a good idea to invest in that mutual fund.

Remember to always evaluate a fund against its peers of similar stature or class. If it’s a bond fund, compare it against similar bond funds. And always look at the different range periods, not just one.

3. Who is/are the fund managers?

Always go for mutual funds that are run by reputable companies. Also, check the credentials of the fund manager/s. This information is always included in the prospectus.

A quick online search can give you a background of the people and the company behind an investment fund. You can also ask your agent or investment solicitor to tell you more about them.

4. What is the fund’s portfolio like?

The fund’s prospectus and/or fact sheet should be able to tell you where exactly is the fund invested. If you’re a conservative investor, avoid funds that have many speculative stocks in their portfolio.

Or if your investment strategy is aggressive, then a fund that invests in dividend stocks, which are usually large-cap companies, might not necessarily meet your income objectives.

It’s really about finding a mutual fund that will be a good match for your risk tolerance and financial goals.

5. How much are the fees or fund charges?

Ask the mutual fund agent or investment solicitor to list down all the fees that you’ll pay should you invest in a particular fund.

Typically, there’s the management fee, sales load, and redemption fees. Let them explain how these are computed as well. And don’t forget to ask if any of these can be waived.

Some sales load fees and redemption charges can be waived if you invest a particular minimum amount or hold the shares for at least a certain length of time. Knowing these will certainly help you maximize your profits.

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  1. thanks for the gives me a lot of ideas ..your helping me sir Fitz,

  2. sir flitz how about treasury bonds?One of the bank manager discussed it to me and i find interesting.But i need more expert opinions.Pls help thank you po

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