Here's What Fund Salesmen Are Trying to Pitch You Now

Most people wouldn't believe a used-car salesman who said, "Water is wet."

And investors should use a little of that skepticism the next time they buy a mutual fund.

The fund business is about selling, too. Fund companies make money based on how much dough they have in their funds. And the goal is always to attract more dollars.

To do that, fund firms will hawk what's easy to sell. Today those are funds that supposedly deliver protection, income or solid performance in any market.

But a good pitch does not always make a good investment.

Guaranteed to Not Lose Your Money

Three years ago, mutual fund companies were offering an assortment of tech and telecom funds for the taking. Those investments had been hot and people were snapping them up.

Now that those funds have collapsed like balsa-wood buildings, the fund business has moved on to what investors are clamoring for today: safety and security.

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One concoction is the principal-protected fund. These funds typically own a collection of stocks, bonds and cash wrapped up in an insurance contract that protects your principal, as the name says.

They sound like great investments. Of course, there's a catch or two. First, you have to keep your money in the fund for a set period of time -- say five years. If you withdraw it sooner, you'll lose that guarantee to get all of your original investment back, and perhaps pay an extra fee.

And with these funds, you have to worry about plenty of fees. The new ING Principal Protection Fund IV is a good example. This fund guarantees you'll get your principal back if you hang on to it for five years. But its expenses run from 1.75% to 2.50% a year, depending on which share class you buy.

Wait a minute. The average all-stock stock fund in this country costs about 1.5% a year. And a fund that invests in stocks, bonds and cash is usually cheaper than that. This ING fund isn't. You're paying extra for that guarantee of safety.

Plus, this load fund's annual expenses don't include the sales charge you'll pay to buy the fund in the first place.