Investing in mutual funds is much easier than investing in stocks. When you purchase units of a mutual fund, you are really purchasing a portfolio of stocks and / or bonds - and that lowers your risk. When you purchase an individual stock in a company, you are really taking on two kinds of risk.

• The first risk has to do with the risk associated with a single company. For example, that company can have operating problems and miss their earnings targets. This will cause their stock price to decline.

• The second risk has to do with macroeconomic risks - the entire industry could suffer a downturn or the entire stock market could enter a bear phase.

Mutual funds allow you to eliminate most of the first risk i.e. the risk associated with individual stocks through the portfolio concept. By holding more stocks or securities in a portfolio, you lower your overall exposure by spreading out the risk. However, the second type of risk may be minimized only through constant monitoring of the stock market.

Mutual Fund Research

Unfortunately, even mutual fund investments require some research. There are a large number of companies offering Mutual Funds, each fund delivering different returns. Therefore a smart investor will have to do a little bit of research to do some cherry picking. There are certain criteria that must be taken into consideration while picking the right Mutual Funds.

Mutual Fund Performance – You need to evaluate a mutual fund's performance before diving into it. Performance of a Mutual Fund depends on the Fund Manager – the professional handling the portfolio of a particular Mutual Fund.

Minimum Investment and subsequent investments - The price of one unit of a mutual fund is usually quoted in terms of NAV or Net Asset Value - a number that can be found online or in the newspaper. Investing in mutual funds is usually pretty easy since most brokerage houses allow you to add money through automatic withdrawals from a bank account. This can help you build up your investment portfolio in a less painful manner.

Mutual Fund Fees - The most important short-term consideration to take notice of is the fee structure of a mutual fund. Mutual Funds may charge a fee at the time of your purchasing units or at the time of your selling the same. The first type of fee is known as Entry Load whereas the second type of fee is known as Exit Load. There may be some Mutual Funds which do not charge any fee at all. Such funds are called No-Load Mutual Funds.

Finally, mutual funds may also charge management fees. These fees are used to pay the trading costs and management salaries of those individuals running the fund. You want to make sure that the fund fees are low. As a guide, a good mutual fund index fund will have fees in the 0.5% range while a domestic stock fund might be around 1.20%. Index funds are not actively traded while domestic stock funds can be pretty actively traded - so these two values should give you a good feel for the range of mutual fund fees that are acceptable.