Originally rooted in a focus on stewardship, the fund industry has gradually come to focus instead on salesmanship. Keep in mind that mutual fund companies have market share in mind, not your best interest.

Deceptive sales practices fall into five categories:

Hidden Fees

If you hold a fund less than 180 days, plan on being hit with a redemption fee.

Additionally, the no-load B-shares are deceptive. Although investors don't pay anything up front to buy these shares, they pay hefty surrender fees when they sell. Plus, the B-shares carry higher management fees.

Hidden Expenses

Mutual-fund managers demand all sorts of disclosures from the companies in which they invest. Yet funds keep their own shareholders in the dark about expenses that lower their returns.

Take the cost of trading stocks in a portfolio, one of a fund's biggest expenses. It isn't broken out or included in the expense ratios that funds report. Funds do tell investors how often they turn over stocks, but the ratio -- 110%, on average -- is buried in the prospectus and may not mean much to shareholders. (It means that a $100 million fund will make $110 million worth of trades in a year.) If they saw what that frenetic activity was costing them in dollars, says University of Mississippi law professor and ex-SEC lawyer Mercer E. Bullard, they might demand that funds trade much less. That would benefit investors: Studies show that higher-trading strategies yield lower returns.

Soft-dollar payments aren't disclosed, either. Soft dollars are created when fund managers pay their brokers a higher commission than they have to. Those extra dollars work like frequent-flier miles, with fund managers using them to get research reports, data feeds, and other aids for picking stocks. But the practice can create conflicts of interest. Managers may churn their accounts to generate more soft dollars in order to buy services such as stock research that investors shouldn't have to pay for.

Fund managers' compensation is also a tightly held secret. But investors need to know what the manager's incentives are. Is the pay based on pre-tax returns or after-tax returns, beating an index or just beating the fund peer group, or returns for the quarter or longer term?

Misleading Packaging

In recent years, there has been a proliferation of 'packaged' products (structured income products, index-linked GICs, principal-protected funds, wrap accounts, etc.) that claim to provide simple solutions to complex problems. Unfortunately, the products themselves tend to be quite complex. This makes it difficult for investors to assess the risks they are taking and the fees they are paying for the convenience. On the latter issue, packaging allows the provider to add-in an additional layer of fees (such as offering expenses, capital guarantee fees, administration and custody charges, servicing or trailer fees, and management fees). These packaged products once again demonstrate the industry's insensitivity to the fees investors are paying.

Inadequate Information

Most funds report their holdings to shareholders only twice a year, not enough for investors to gauge whether they're overexposed to a sector or stock. And too often, their quarterly reports offer broad summaries that don't explain key stock-picking decisions that affect returns. 'It's very difficult for even a well-educated investor to have a comprehensive understanding to compare funds,' says Congressman Richard H. Baker (R-La), chairman of the House capital markets subcommittee.

There is also 'window dressing.' This is the deceptive practice of some mutual funds in which recently weak stocks are sold and recently strong stocks are bought just before the fund's holdings are made public, in order to give the appearance that they've been holding good stocks all along.

Biased Fund Recommendations

Most mutual fund companies do not sell their funds. They have turned to brokerage firms and financial planners to distribute their products.

Mutual fund companies may pay brokerage firms to get on a 'preferred list.' The brokers sell from that list, whether the funds are good or not.

There are also situations where a higher commission rate is paid to registered representatives for selling certain funds. Because many branch managers are paid a bonus based on how many select-funds their office sells, they create undue pressure on brokers to tout these funds.