How can you tell it the best Mutual Funds?

Question

there are many type of mutual fund but how can you compare and if there any key to define a good mutual fund

Answer 1

Indeed there are many many types of mutual funds and choosing one can be a very arduous task.  There are certain keys that you can look for to find  good mutual funds.

One is the expense ratio.   The lower the expense ratio generally the better the chance the the fund will have a good performance over a long period of time.  For example the difference in performance between two funds over 20 years where one fund has an expense ratio of 0.70% and the other an expense ratio of 1.50% is going to be better than 25%.  

Another thing that needs to be considers is portfolio turnover.  A mutual fund the turns its portfolio 100% annually will incur a much higher realized capital gains than one the turns its portfolio 25% annually other things being equal.  The taxes you pay reduce your return.

Morningstar.com rates mutual funds based on past performance, which may or may not be an indicator of future performance.  Their ratings are not absolute ratings but relative ratings compare to like type funds.  So even though a fund might be rated in the highest category--5 stars--it may not have a particularly good 10 year return compared to the entire fund universe because for example it might be a growth fund which have performed very poorly during the past 10 years.

Funds tend to go through hot and cold streaks.  For example emerging market funds have been very hot these past 5 years as have resource funds whereas financial funds are colder than the south pole currently.