How to Conduct Useful Mutual Fund Trading Research

Mutual fund trading can be one of the most beneficial practices that you institute in your portfolio. However, in order to be successful, you have to pick the best mutual funds available in the market. This requires research. Here are the basics of how to conduct useful mutual fund trading research.

MorningStar Ratings

Many mutual fund investors start out by looking at MorningStar ratings. MorningStar is the leading authority in the financial industry as far as rating investments on several different categories. MorningStar compiles a list of every mutual fund that is available in the market. They break this list down into numerous categories of mutual funds. From there, they look at the past performance of the fund and gauge that against the risk level that was used to attain it. They will then rank all of the funds from a particular category based on this information. The top 10% in each category gets a five star rating. The next 22.5% in the category gets a four-star rating. Therefore, this gives you a good place to start your research.

Many people will use the rating system as a way to pick a particular mutual fund. However, if you want to do thorough research, this should only be the beginning. The MorningStar rating systems actually give at least a four-star rating to at least a third of the mutual funds out there. Therefore, you will have to narrow down your search even further with relevant research.

Mutual Fund Prospectus

Once you have looked at MorningStar to come up with a list of funds that you would like to research further, you need to check out the mutual fund prospectus for each individual fund. A mutual fund prospectus is a document that is produced by the management team of a mutual fund. It will give you a wealth of information about the fund and its historical performance. At the beginning of the prospectus you will find basic information about it. It will outline the particular investment strategy that it employs, as well as its current holdings in the fund. This is a good place to start since it will immediately tell you whether the investment objectives of the fund match up with your own. If you like what you see, move on to the rest of the prospectus.

You will need to look at the performance of the fund over the last few years. Compare that to the risk level that they used and what types of investments they invested in. You will also want to take a look at the expense ratio of each fund that you are considering. Many investors do not take into consideration the expense ratio, although it is a very important part of evaluating a mutual fund. This is a percentage of the winnings of the fund that is paid back to the fund managers and administration. Therefore, this can get into your overall profits. Take all these things into consideration before choosing a mutual fund.

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