Mutual fund may be referred to as an investment vehicle in which group of investors pool their money together with a view to invest in stocks, bonds, cash and/or other assets. There are various factors which determine the success of an investment like sales charges, fees and expenses. Different funds have different costs. Funds with high-cost must perform better than low-cost funds to generate same amount of return

Investment in mutual funds also has an impact on taxes. Even if you get a negative return you will need to pay tax for capital gain distribution. The age and size of the fund also determines the success of the investment. Small funds and newly invested funds have excellent short term performance. However, as the number of stocks increase, each stock has less impact on the fund’s performance.

While there are many benefits associated with these funds there are risks attached to them as well. The investment risk is high if the fund is volatile. Operational changes in the fund can affect future fund performance. These changes could be changes in investment strategy or change in the investment advisor. Fund’s portfolio turnover rate impacts trading costs and capital gain taxes.

Success of fund’s investment also depends on the amount invested in each major asset class like stocks, bonds or cash rather than investing on one security only.

Mentioned below are few tips for making money via mutual funds:

  1. Determine your investment objectives in terms of insurance, goals, etc. Buy stocks which are in line with your investment goals.
  2. Learn to allocate funds strategically. Subtract your age from 100 and invest that percentage in stocks and rest should be invested in bonds.
  3. 10% to 25% of the stock should be invested in international securities.
  4. 5% of stock portfolio and 5% of bond portion must be invested in Real Estate Investment Trusts (REITs).
  5. Diversify and re-diversity your assets into different categories. Index funds should be an important part of the portfolio. They have lower expenses and are more tax efficient.
  6. Skip the price targets.
  7. If a stock is growing and it should not be traded away.
  8. Use mutual funds cost calculator to calculate investor’s fees and expenses of different funds.

Mutual funds are subject to market risks and are not insured by the FDIC. Thus, investment should be made carefully.