How to buy mutual funds When choosing mutual funds, few aspects are within investors' control. Future performance isn't one of them. But expenses, risk, manager tenure and tax-efficiency are qualities that can be judged before you buy. Index funds, which track a basket of stocks, are generally low-cost options intended to provide market-like returns. Active management, in contrast, relies on a professional's stock-picking in an effort to beat a market benchmark. Here are the major pitfalls that can trip you up with mutual funds: • Paying too much: It can't be said enough: with funds, costs matter. Annual expenses eat into total return, year after year. With high-cost funds, you pay more and pocket less. Moreover, studies show that low-expense funds are more likely to outperform their costlier counterparts over time. • Taking excessive risk: Funds with great multiyear track records may look attractive, but you need to know just how those returns were generated. Check the fund's annualized results for unusual highs and lows. Then compare those figures with its category peers. • Portfolio overlap: Don't be a fund collector. Copycat funds bloat your investment portfolio and drag down performance. At some point, the blend will produce bland, index-like results at a high cost. Plus, heavier concentration in a few stocks adds risk. • Recent manager changes: A fund's performance doesn't always speak for itself. Funds are ranked, rated and rewarded on the strength of returns over several years. But if a manager is new, those results are no longer a litmus test. • Investment strategy drift: A burst of trading activity, venturing into new market sectors, adding larger-cap stocks, taking an aggressive stance in a volatile market -- these are all telltale signs that a fund has changed its investment strategy, and not always for the better. via marketwatch