How To Scrutinize Your Mutual Funds?

- Alan Lavine and Gail Liberman

In the wake of the mutual fund scandal that saw a handful of mutual funds engage in unscrupulous practices, it pays to ask some important questions before you invest.

Sheldon Jacobs, publisher of the No-Load Investor, Brentwood, Tenn., suggests giving your mutual funds this test:

• Does the fund have a below-average expense ratio? An expense ratio is the total annual fund operating expenses as a percentage of the fund's assets. The average stock fund has a 1.4 percent expense ratio. Bond funds average bout 1 percent. Money funds average about .5 percent.

• Will the investment company close a fund if it gets too large? If so, you have an indication that the mutual fund is being honest with its shareholders and is willing to forgo profits.

• Does the fund manager own shares in the fund? This can be a positive sign.
• Is the mutual fund group constantly launching new funds based on current fads and trends? Not a good sign.

• Does the mutual fund's annual report list failures along with successes? If not, the fund group may be trying to whitewash bad news.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).