By Heinz Bulos
Looking at mutual funds or unit investment trust funds? Here are five things you absolutely have to check before you invest:
1. Fund’s objective
Each fund has its own investment objective, such as capital preservation or growth. The prospectus will also detail the corresponding investment strategy. See if your financial goal matches the fund’s objective. Check if the investment strategy matches how much risk you’re willing to take. “The investor should not also forget the matching of time frames of both the objective and the investment outlet,” explains Ricky So, Assistant Vice President and Head of Training and Marketing of Philam Asset Management, Inc.
2. Past performance
Sure, past performance is no guarantee of future results, but that’s indicative of a track record. Always evaluate a fund against its peers of similar stature/class. If it’s a bond fund, compare its annual returns against similar bond funds. But don’t just look at one-year returns. You do want to see consistency, so compare funds using at least a three-year period.
3. Fund manager
Consider the reputation of the company behind the fund. And check the credentials of the fund manager. New funds are popping up all the time. If you’re investing for the first time, you may want to go with a more established company.
4. Fund’s portfolio
Compare what the fund is actually invested in to what the investment objectives and policies stated in its prospectus to see if they are consistent. If the fund is supposed to be aggressive in its strategy but its actual portfolio shows otherwise, there’s an obvious mismatch that could be misleading.
5. Fee structure
How and how much the fund charges for management fee, sales load, and redemption fee affect your returns. All things being equal, of course you want to go for the fund that charges the least.