Read Your Mutual Funds Style

Your mutual funds style means how your fund works with assets. This covers whether it's large, mid- or small-sized, and what kinds of assets it has--growth, value or blended. Style drift is a term that refers to a fund manager changing the fund's style over time for various reasons. The best way to avoid style drift and stay in the same style as you began is to invest in index funds. Such funds try to match the market and therefore have no reason to wander.

Learn to Read a Mutual Funds Style Box

Take a look at the style box for your mutual fund on the Morningstar site.

Look at the vertical (up and down) axis of the style box. These boxes refer to the size of the market cap. The top box is large, the middle box is medium and the bottom box is small.

Read the horizontal axis of the style box. The three categories here are, from left to right, value, blend and growth. These refer to the type of fund.

Understand that value funds are those that are considered currently under-appreciated on the market. Growth funds are funds that are considered to have a high potential for earnings, or growth. Blend funds are a combination of value and growth funds.

Find the category that best fits your investment needs, and look for funds in that category.

Use the horizontal and vertical axes together to classify your fund into one of the nine available categories.

Tips & Warnings

• Learn to use the Morningstar Style Box. It is simple to use and makes choosing your mutual funds style much easier by breaking up the numerous possibilities into 9 different sections.
• Listen to the manager. Fund managers typically issue quarterly or yearly updates, explaining their investing philosophy for the prior and upcoming quarters. Read these updates to make sure the fund manager's philosophy still reflects your investing goals.
• Read the prospectus. Before investing in any mutual fund, read the prospectus to determine the fund's objectives, performance history and fees.
• After you have invested, continue to watch your mutual fund over time for style drift. If a fund gets too far from the style you feel most comfortable with, sell it and begin again with another.