How to Rate Mutual Funds

Mutual funds are not all the same, and the people who invest in them are just as unique. The methods companies use may not tell you how to rate mutual funds for your individual needs. If you want to rate mutual funds yourself, you'll end up with a fund that is tailor-made to fit your needs and still highly-rated according to performance standards.

Create Your Own System to Rank Mutual Funds

Build a list expressing why you plan to invest in mutual funds. Be as specific as possible.

Cut down your list to make a top-10, top-5 or top-3 (depending on your list size) reasons for investing.

Make a new list. Write out statements describing your personality, particularly where risk is involved.

Compare your investment list with your personality list to find the right type of mutual fund for you. It might be: low investment, low-risk, low return, high investment, low-risk, mid-return or some other combination with which you feel comfortable.

Check out top-performing funds in your investment arena. You can visit websites that rate mutual funds or check out investment papers and magazines.

Compare the highest-rated funds against your own lists to see if any are compatible.

Select the fund (or funds) with the best ratings from both the professionals and from your own lists.

Tips & Warnings

• A personalized system for ranking mutual funds is the best way for you to find the funds that meet your investment needs. You can speak to your broker or financial advisor if you feel unprepared for developing your own list.
• Personalized lists do not guarantee great returns. Don't invest money you can't afford to lose.
• The more you know about the different types of mutual funds, the better off you will be when it comes to choosing one. Common types of mutual funds include money market, fixed income, growth or equity, balanced, index and specialty funds. Each fund performs differently and carries different levels of risk for investors.
• Check for minimum investment amounts. Most funds have them.
• When you rate individual mutual funds, remember that even if funds have done well in the past, it does not mean that they will continue to do well. Mutual funds are investments, and investments always carry an element of risk.