Mutual funds are big business. And like big business everywhere from Big Oil to Big Pharma and everywhere in between – many funds put their own interests way ahead of yours.

What are they interested in? Making money, of course. And how do they make that money? By whacking you with as many fees, sales charges, loads and what-nots as they can.

A lot of your fellow investors are paying excessive commissions and fees. Others own funds that are taking way too many risks. And still more – many, many more – have their money stuck in second gear, sitting in mutual funds that are chronic underperformers.

All these mistakes are costing investors like you countless millions of dollars!

And that's a crying shame, because it doesn't have to be that way. You can own better funds. You deserve to make more money. And that's where we can help. (Get our special report, How to Successfully Navigate the Mutual Fund Maze, absolutely free! Just click here.)

4 Mutual Fund Profit-Busters

Look, mutual funds can be a very useful investment tool. One of the great things about them is that they give you the same diversification that wealthy investors get. You can invest in hundreds of stocks or bonds without putting up a lot of money.

As a shareholder in a mutual fund, you reap your share of any gains (or losses) on investments held by the fund. Every investor gets the same return per share, whether you invest $1,000 or $100,000.

That's the good part. Unfortunately, not all mutual funds are created equal, and there are serious pitfalls you need to watch out for as well. Here are four of the biggest:

1. Costs and fees.

Some mutual funds charge several types of fees: management fees, marketing fees and even fees to buy and redeem shares. These can range from 0.35% to more than 8% of the fund's assets per year, and they are taken off the top of the fund's profits. High fees substantially reduce even the best of returns, so it's imperative that you know exactly what fees you'll be paying before you buy.

Next up...taxes!

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2. Taxes.

Taxes on profits are one thing, but with mutual funds, you could find yourself with a capital gains tax bill at the end of the year even if your fund lost money! Crazy, huh? The reason is that the manager is constantly selling holdings, and every time he or she sells at a gain, you, the shareholder, are taxed. (Get our tips on how to lower your mutual fund taxes.)

3. The portfolio manager is playing with other people's money.

This is more serious than you might think.

Let's give you a little Dolan Straight Talk on how the mutual fund industry really works:

Most portfolio managers receive compensation and retain their jobs based on how well their fund performs in comparison to other funds in the same category. This pressure leads many of them to take risks to keep their returns high. They might do a ton of buying and selling and hedging that they'd never do with their own money.

This can be an especially serious problem when the market struggles, as we've seen recently. Some managers panic and sell stocks to try to keep their rate of return from falling. That creates a couple of problems: 1) It forces you to take losses that you might have avoided; and 2) Every time you buy and sell (and you know the manager will be buying something to replace the sold securities), you incur even more fees.

4. You may not be getting the diversification you think you are.

Too many mutual fund managers are as guilty as individual investors of chasing popular stocks. Result: A lot of funds own the same stocks. If you own three mutual funds, you would naturally think you're diversified, but you may be investing in the same stocks – and paying three sets of fees!

Bottom line: Investing in the wrong funds is costly, and you deserve better. Know what you're getting into. Before you invest in any fund, be check its fees, long-term performance, top holdings, and more.

You can become a smarter and more successful mutual fund investor, and we're there to help you at Dolans.com.

Take the first step to becoming a smarter investor with your free copy of The Dolans' Special Report, "How to Successfully Navigate the Mutual Fund Maze." You'll discover the six questions you should ask before investing in a fund, Ken and Daria's simple three-step process to selecting the right funds, everything you need to know about mutual fund fees, and more! Reserve your free copy now!

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