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- 1). Read about the different rating systems such as Lipper and Morning Star. These are both well respected industry mutual fund rating companies. However, Lipper uses a performance history whereas Morning Star adjusts past performance against risk and sales charges. If you are concerned about risk, looking merely at Lipper ratings would not effectively evaluate funds for your needs.
- 2). Go to mutual fund rating websites and financial journals to research ratings on funds that interest you. Morning Star and Lipper are good starts, but also look at Kiplinger, The Wall Street Journal and Barron's for their top picks. Many of these resources provide updated quarterly ratings and further evaluate the success of the funds based on performance in existing economic conditions.
- 3). Read the fund prospectus to get further information regarding the investment objectives, expenses and risks of the fund. Good ratings across the board doesn't mean that the fund meets your investment objectives. This can only be determined by reading the prospectus thoroughly.
- 4). Locate the fund rating either on the fund's information sheet or one of the resources for the ratings. Lipper ratings are distinguished by a "1st, 2nd, 3rd or 4th" quartile rating for different history periods. The ten-year period gives the best gauge of long-term success, and a fund in the 1st quartile is generally a top contender in the risk category. Morning Star rates funds with stars, with five stars representing the best funds.
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