No-load mutual funds have made entry into and exit out of mutual funds particularly easy, and relatively penalty-free. While a few funds charge a fee for early exit from a fund, most do not. Load funds place a penalty for purchase and/or sale of shares of the fund to discourage frequent trading of their funds' shares. Are there strategies one should adopt regarding entering or exiting a mutual fund - some that may actually contribute to your net returns?

Mutual funds are typically used as long-term buy and hold investment assets. After all, you are hiring an expert money manager to tide you over good and bad markets, and to help grow your overall capital. Having said that, your net worth is ultimately your business and yours only. Hence, define long term to mean three to five years. Most bull and bear markets tend to reach their peak or bottom within this time frame, and based on your strategy, it may be time to exit the fund once that peak is passed. This thus leads to strategy number one:

Do not hold a mutual fund past the point of the peak in a bull market or if holding short funds, past the bottom of the bear market.

Holding onto a mutual fund past these points implies giving up on all your gains. Yes, the gains may be made back in the next bull cycle, but it is not at all assured that your fund maintains its philosophy all through the bear market. Bear markets have a tendency to kick money managers out of their cushy jobs, forcing funds to reconsider their strategy even as the money inflow drop to a trickle.

As a corollary to the above strategy, do not buy mutual funds near the peak of a bull market in the class of investments the fund specializes in. While this is obvious, it is an extremely common error. Human psychology causes us to look for multiple forms of investment near the top of a bull market, including mutual funds. Moreover, many more sector specific mutual funds emerge near the top, which makes investing in them particularly attractive. Unfortunately, this is the bull's method of snaring your last dollar in before giving way to a long and dreary bear market. Also, do not rely on your manager to guide your investments through the bear market - most of them cannot avoid the general bullish psychology themselves - and what is worse, mutual funds always have a much harder time getting rid of their shares than you will ever have in dumping the fund.

Use multiple investment letters to gauge if you are near the end of a bull/bear market. No one can guess this accurately all the time, but through this form of expert independent help, you can get pretty close. There are many investment letters mentioned here.

Exit a mutual fund if it changes strategy. This is particularly common if the mutual fund has been lagging the general market. Every mutual fund, even good ones, will have periods where it lags the market. However, a fund that tinkers with its strategy too much is a fund that has lost its way - exit it as soon as you can. When a mutual fund manager leaves or is replaced, it is important to consider the new manager's method of operation. If the method is significantly different and does not match with your initial reasons for investing in the fund, it is yet another reason to exit the fund.

Exit mutual funds when they become too large in size. Hundred billion dollar mutual funds will tend to track the larger market rather than outperform it. It is better to buy pure index funds at that stage with their low expense ratios.

If you know a mutual fund manager very well in terms of their strategy and philosophy, buy into their fund when they start a new fund. Smaller funds have a higher upside than larger funds; however management is crucial for its success.

The best time to enter a mutual fund is at the start of a bull market. Again, this is obvious, but not followed widely at all! The main reason is not knowing, and then not trusting, that a new bull market in a particular sector has just been born. Again, use investment newsletters to help guide you towards a new bull market.

Do not worry excessively about frequent trading by the manager - instead follow a manager whose philosophy you agree with. Expense ratios are worth keeping an eye on, but paying a little extra for a top quality manager will be always worth it.

Sticking to the above entry and exit strategies will help ensure that you obtain the maximum returns from your mutual fund investments.