SOME people won't buy a car when a new model first rolls off the production line. They'd rather wait until all the bugs are out before they put any money down. Many in the investment business stand by this same rule. Don't buy a fund in its first year, no matter how tempting it looks, they advise. ``We prefer ours a little seasoned,'' says one investment specialist in New York.
Not everyone heeds this advice, however. With the recent wave of new mutual funds, investing in them has swelled, not ebbed.
While analysts tend to regard young funds with some interest but more than a little caution, many investors see them as ways to break into and cash in on new markets.
The rise of new funds has created more investment opportunities, but has also made it harder for the average investor to spot the weaker funds, those riding a market fad, or carbon copies of successful funds.
For this reason, many will not even consider a fund until it has passed the ``three-year mark.'' A ten-year period is the measure most often used to determine a fund's performance, because it covers a variety of market conditions, and rules out any special short-term circumstances that might favor a particular type of investment. But younger funds, lacking a long track record, may have less than a year in which to be judged.
However, other investors will not discourage new funds simply because they are still young, says Steven Norwitz, of T. Rowe Price, an investment firm in Baltimore.
``Small, new funds have the great advantage of flexibility, although they lack the stability of older, larger funds,'' says Reg Green, of the Mutual Fund News Service in San Francisco. And, they can enhance an already diverse portfolio.
Finding the fund that's right for you means you have to ``search a little more, and do your homework,'' says Gerald Perritt, editor of The Mutual Fund Letter, in Chicago.
Here's what some of the experts look for when doing their ``homework:''
An experienced manager. Does he or she have a successful track record?
Success. How and why has the fund succeeded so far?
Diversity. Does the fund have a ``sensible'' variety of investments?
Safety. Does the fund's return cover the risks it takes to meet its objectives?
Investment style. How does it plan to meet its objectives?