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Expenses - This is one item every fund investor should pay close attention to. Funds always have certain expenses associated with them, and these expenses are almost always passed on to the investors under various titles. While most funds have standard itemized cost structures, the amount of these cost items could differ significantly from one fund to another. Some funds are simply more expensive than others. A fund's prospectus clearly spells out its costs so the investor can make an informed decision on whether a fund's expense justifies its performance and ultimately its profit potential. We will cover these various costs later on in the chapter.

Turnover - All funds from time to time make adjustments to their portfolio. For example, those with stocks in their portfolio may decide to switch from one stock to another. Or they may decide to lower their stock holdings in favor of bonds. All of these adjustments are made based on the fact that it would be advantageous to the investors and to keep the fund within its objectives. Such adjustments basically involve selling some securities and buying others. This is known as turnover and it is expressed as turnover rate on an annual basis.

For example, a fund with a five-year 50% average turnover rate, has replaced 50% worth of its net assets every year. This does not necessarily mean the fund has replaced exactly half of its portfolio. It could be that the fund replaced a small portion of its portfolio a few times equaling 50% of its average net assets when summed up. A 100% turnover rate for the past year would mean that fund sold securities equivalent to its entire net assets last year and replaced them with other securities. The replacement may not (and usually does not) happen in one shot. It is usually a gradual replacement over the entire year (or the period mentioned). It is also possible for the turnover rate to be above 100%. For example, a 200% turnover rate means the fund replaced (albeit gradually) its securities equivalent to twice its net assets over the …