Before you pick a mutual fund, make sure you check out a fund’s turnover ratio.

When evaluating and selecting a good mutual fund to invest in there are several criteria to consider. However, before considering the criteria, one needs to determine the role the mutual fund is going to play in the portfolio. Is the fund’s purpose to add as much return as possible? Or is the fund to provide income? The answers to these questions will point you in very different directions as to which type of fund to consider. A fund that provides income, more likely a balanced or bond fund, will be different than a fund that invests in smaller companies. Once the role of the fund is determined, then focusing on the criteria is appropriate.

The first criteria should be mutual funds which are no-load mutual funds. This means that there is no commission being received by anyone when you purchase the fund. Additionally, make sure there are no back-end loads which can be hidden and surprise you. There are thousands of quality no-load mutual funds to choose from with excellent track records so there is no need for you to buy a load fund.

Secondly, how long has the mutual fund been in existence? It is recommended the fund should have at least a 5-year track record of performing well against its benchmark. Many funds can have a “hot” year and be up significantly compared to their peers, but you want to invest in a mutual fund that can perform well over both up and down market cycles. If a mutual fund has been around five years or more, it is likely that a portion of the past returns have happened in different market environments.

Ideally the mutual fund manager should have been the same manager during this 5-year period. Once there is a manager change, the past performance of the fund is somewhat irrelevant because the new manager may make different investment decisions than the prior manager would have made. Consistency in the managers is a plus.

Next research the volatility of the fund. In other words, if the fund has a good return beating its benchmark over the long-run, how was that accomplished? In a wild roller coaster ride of screaming positive returns in an up market with a corresponding breathtaking plunge in a down market? Or was there a more moderate positive return with less negative return than the overall market in a down market? Although the screaming positive return is attractive, most investors don’t have the stomach to stay invested through the plunge. Not trying to time the market is a hallmark of a seasoned investor.

Another significant thing to evaluate when considering which mutual fund is the expense ratio of the fund. How much did it cost for the fund to achieve the performance it did achieve? The higher the expense ratio compared to its peers, the more the fund has to outperform its competitors. If a fund has an expense ratio of 1.25 percent and another similar fund has an expense ratio of 0.75 percent, the first mutual fund has to outperform the second by 0.5 percent each and every year just to stay even with the second fund. This is especially important to consider if the market is entering a lower overall return environment where the higher expense ratio can become more of a drag on the fund’s performance.

An important metric to check is the fund’s turnover ratio, which means how long a manager keeps the stocks in its portfolio. The more the manager buys and sells what is in the portfolio, the higher the expenses are going to be. As discussed earlier, the lower the expenses the better.

Lastly, research the growth of the size of the mutual fund. If the fund has a spectacular short-term performance, many people may start to invest in it. All of a sudden the manager may have more money to invest than the manager can find quality stocks to invest in. This will result in cash that isn’t invested and this cash can hurt the return of the fund .

Common sense plays a role in choosing a quality no-load mutual fund to invest in. If the fund being considered has recently been written about in the financial press, it probably isn’t the time to invest in it. The reasons for the fund’s popularity and return, which warranted the press coverage, may be short-lived. Investing in a consistently performing no-load mutual fund, which has been around through many market cycles, while performing well against its benchmark over a 5-year and 10-year basis, will serve you well.