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Another company involved in ranking mutual funds is Lipper (a subsidiary of Reuters). Lipper's method of ranking begins by classifying the funds based on their portfolios. Then the funds within each class are evaluated on their 1-year and 3-year performances and their ranks are their percentile standing within their class. The highest performing funds are ranked in the first percentile of their class while the poorest performing funds are ranked in the one-hundredth percentile. Others would fall in the middle.

There are other companies around that rate mutual funds as well. Standard and Poor's, for example, has a fund rating service which rates managed funds based on risk and performance. Once again, you should never just rely on simple ratings published by even reputable companies. The rankings are inadequate in evaluating funds, but it doesn't hurt to check them out either.

Ordering Funds

With many funds, you can either buy them directly from their respective fund companies or you can buy them through your broker. Each method has pros and cons associated with it. With a broker you may not have access to all the funds and you would be charged commissions on your transactions. However, buying funds through your broker gives you centralized access to all your investments and you may be able to buy funds on margin. My recommendation is to use your deep-discount broker for mutual funds, unless they do not have the fund you are interested in. …