How to (not) choose mutual funds

Choosing properly open-end mutual funds is sometimes quite a chore.

Before entering into an investment agreement, you should carefully consider a few details that may change your future return.

The goal of open-end mutual funds is to bring the investor the highest possible profit. It doesn’t matter if the fund invests in real estate, shares or bonds. However, profit as a faithful partner is accompanied by loss. This can literally become a nightmare for many investors. Just ignore a few details and you can cry over earnings.
Past performance does not secure future income

No investor should look at past returns when investing in mutual funds. Investment companies that create and manage open-end mutual funds operate in a capital market that is somewhat unpredictable. The record profits of mutual funds from 2020 are just a nice story two years later.

Get advice

Get advice before you invest. Although financial advisers under the new European MiFID directive cannot advise their clients, they can at least provide important information that will lead you to decide why to invest in this and that fund.

Currency risk of the investment

Currency risk may not really be a risk. Many mutual funds offer some hedging and hedge against currency risk. In addition, some mutual funds, which are denominated in Czech crowns, have a higher entry fee.

Entry, exit and administration fees

Fees should not be the first thing you find out about the new fund. They are important for investments, but they should not be the first and at the same time the last information you get about the mutual fund.

Funds often offer two of the three basic fees. It is usually a combination of entry and administration fee or administration and exit fee. The entry or exit fee is expressed as a percentage that the investment company takes from each amount invested, ie from the volume that you decide to sell and get your money back. The management fee is a fee for the annual management of the fund.

All types of fees for ordinary mutual funds range from one to three percent.