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With 3,500 funds, do we need more? Maybe


When prospectuses for new mutual funds arrive in the mail, I sometimes can't help wondering: Is this fund really necessary?

The answer, of course, depends on one's vantage point.

For a fund's sponsor, it naturally has to be yes. A new fund can boost profits by bringing in more cash to be managed for a fee and, perhaps, more money from sales charges.

Accountants, attorneys, custodians, printers and others who serve the fund industry are also likely to answer affirmatively. Every new fund means more business for them.

Brokers, financial planners and other sales people might say yes, too, but a bit less enthusiastically. Although every new fund adds to the choices that can be offered to clients, it also adds to the problem of deciding which should be recommended.

For the Securities and Exchange Commission, which reviews registration statements to make sure that funds satisfy disclosure requirements and won't invest in too many illiquid securities, it means more work.

But what about you, the investor? Do you really need additional ** choices to build a suitable fund portfolio when you have your pick of 3,500 stock and bond funds? A new fund may be worth a look if:

* It's designed to achieve an investment objective -- without exposing you to excessive risk -- by investing in a newly targeted sub-set of securities issues.

* It offers you convenience -- as well as the possibility of reasonable returns -- as another choice in a fund family with which you already have an account.

If a new fund tempts you, keep a few basic points in mind:

All stock and bond funds have one of three investment objectives: capital appreciation, income or a combination of both.

To raise the probability of above-average growth or income, some funds pursue aggressive policies by investing in riskier securities or by engaging in speculative investment techniques.

They may buy the stocks of companies that are small or young, are concentrated in a single industry or geographic area, or are foreign; government or corporate bonds that have lower credit quality or longer maturities; or illiquid securities.

Other funds pursue more conservative investment policies and practices. They are more likely to preserve your capital, but also to provide below-average appreciation or income.

Consider a sampling of funds offered in the past year:

* Utilities funds by firms like Alliance, Benham, Merrill Lynch, PaineWebber and Strong, to pursue income and growth.

* Fidelity's Southeast Asia and Latin America funds and Scudder's Pacific Opportunities and Latin America funds, to seek appreciation by investing in those markets.

* Value-oriented funds like Mutual Discovery Fund, in which Michael Price applies to small-capitalization companies the approach he has used in managing three other Mutual Series funds. Or Twentieth Century Value, the first value-oriented fund from the Twentieth Century family, whose other equity funds are synonymous with growth (and volatility).

* Dividend growth funds from T. Rowe Price and Fidelity. Despite similar names, their objectives differ. Price's fund seeks to provide income and appreciation; Fidelity's, only appreciation.

* Funds seeking to profit from foreign exposure, like American Funds' Capital World Growth and Income Fund, which invests in stocks and bonds; GIT's Worldwide Growth Portfolio, which invests in stocks of Mexico and other emerging markets; and MFS World Growth Fund, which invests in U.S. emerging growth companies, established foreign growth companies and emerging-market companies.

If the investment adviser that sponsors the new fund has a good reputation in managing other funds, study the investment objectives, policies and risks spelled out in the new fund's prospectus to be sure that they are acceptable.

If the portfolio manager has managed a fund invested in similar securities, check that fund's record.

If a fund is the first offered by a firm about which you can't get much relevant information, it may be prudent to pass it by.

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