M utual funds, like all investments, can occasionally be perplexing. Often when a specific mutual fund or ETF question comes to mind, no obvious source for an answer is apparent.

Here is a list of practical answers to frequently asked mutual fund questions. This quick reference guide is designed to be a go to source for answers to your mutual fund investing needs.

AAIIs Mutual Fund area is your key to successful investing.

Mutual Funds: Diversification

• Should I make sure to invest in more than one fund family for diversification?
  

  Mutual Funds: Size

  Mutual Funds: Portfolio Managers

• Should I switch out of a fund if the portfolio manager changes?

Mutual Funds: Load Mutual Funds v.s No-Load Mutual Funds

• Whats the advantage to investing in no-load or low-load funds?

• How do I distinguish a low-load fund from a load fund?

• My fund just imposed a load. Should I bail out?
  

  Clone Mutual Funds: Share Classes

• If a mutual fund closes before I have a chance to invest and a clone is available, should I invest in the clone fund?

• The mutual fund Im considering offers class A, B, and C shares. Which one should I buy?
  

  Mutual Fund Expenses

• Should I be concerned with mutual fund expenses? After all, its already reflected in the funds performance numbers.

• Should I pay any attention to the portfolio turnover ratio of a mutual fund?
  

  Measuring the Risk of Mutual Funds

• What does a mutual funds beta coefficient measure?

• What is standard deviation?
  

  Buying Mutual Funds

• Should I deal directly with the fund family when purchasing a mutual fund or go through one of the discount brokers that trade mutual funds?

Mutual Funds: Diversification

How many different mutual funds should I own?

The number of mutual funds suitable for an individual investor will vary depending on individual circumstancesthere is no universal number that applies for everyone.

However, as a useful yardstick, consider the range of funds derived from the rationale that diversification should be one of every investors goals. Simple but broad diversification would imply four funds: a domestic equity mutual fund, a domestic bond mutual fund, an international stock mutual fund and an international bond mutual fund. Dividing the domestic equity portion into two fundsone specializing in small stocks and the other in larger capitalization stocksbrings the count up to five. Splitting the international equity portion into mutual funds specializing in developed economies and funds specializing in developing and emerging economies makes six. If you prefer a separate European fund and Far East fund, the total is up to seven. Building diversity in your domestic bonds by adding a junk bond fund stretches the number of funds to eight. And if we include a money market fund, the number is nine.

The benefits of diversification are difficult to achieve with commitments of less than 10% of your portfolio to any one area, which sets the upper range at not much more than 10 mutual funds. Thus, diversification implies a range of around four to nine mutual fundsall unique in investment objective and security coverage.

Overdiversification results in fund investments that essentially duplicate each other; this adds nothing to performance, but it will add frustration as well as cost in keeping track of and monitoring so many funds.

Should I make sure to invest in more than one fund family for diversification?

No, it is possible to stay within a mutual fund family and be adequately diversified. However, there is a danger in remaining doggedly within one fund family solely for convenience, and that is that you could overlook a better-managed fund elsewhere. For instance, rather than seek out the best international mutual fund, you may choose the one offered by the fund family you are in currently because it is most convenient.

Mutual Funds: Size

Can a mutual fund be too large?

Yes. But it can also be too small. The benefits or stigmatisms of size depend on the segment of the market that the mutual fund operates in, as well as its investment style.

For example, when it comes to a U.S. government bond mutual funds, a behemoth is probably best. Large mutual funds have lower costs, as a percentage of total assets, and the U.S. government bond market is one of the most efficient in the world, able to handle large transactions without significant price changes. Similarly, large asset bases benefit corporate bond mutual funds by spreading expenses and because credit risk is spread more widely among different issuers.

On the equity side, index mutual funds can benefit by size because expenses can be spread more widely. Index mutual funds are passively managedthat is, there is no portfolio manager who is constantly making investment decisions, so the investment advisory fee is low. A low annual expense ratio is one of the advantages of investing in these kinds of funds.

However, size can be a detriment to actively managed stock mutual funds. These funds may lose some flexibility when assets reach $500 million and many eventually close before reaching $1 billion because of trading and stock selection difficulties. Actively managed mutual funds that focus on larger companies begin to resemble index funds when assets are large and spread over many stocks, so you may be receiving a near market index return while paying extra for active management.

Size can also be a detriment to mutual funds specializing in small stocks. These stocks have less trading volume, and it can be difficult to trade larger positions without affecting prices (pushing prices up on purchase, and down when sold).

The change in size of a mutual fund may also impinge on certain fund managers investment styles. For instance, a small stock fund manager may essentially be a stockpicker whose success draws substantial new money into the fund, and his performance may slip as he attempts to digest the new infusion of cash.

Portfolio Managers

Should I switch out of a mutual fund if the portfolio manager changes?

No. The change of a portfolio manager is not reason, in and of itself, to leave a fund. Instead, monitor the mutual fund closely to make sure the new manager is continuing the old managers style, and that any changes wont significantly affect your investment. New portfolio managers have been known to take command of a mutual fund and sell off securities, reflecting a change in style. A significant portfolio realignment might mean greater capital gains distributions, and therefore taxes, unless you hold the mutual fund in a tax-sheltered account. On the other hand, if the mutual fund is an index fund or less actively managed, the portfolio manager may not be all that important. Or the new portfolio manager may continue with the old style and perform just fine.