Enter Index Funds

Since most funds' fees leave them underperforming the market indexes, the key is to find a fund that at least matches the market and has minimal fees. There is an easy way to do just that. You need only buy a passively managed fund that tracks the index and charges super-low fees. Enter index funds. On the whole, index funds have lower expenses and are more tax-advantaged because their holdings don't turn over as much.

But if you've got an itch to shoot for higher returns than index funds offer, or don't have access to an index fund in, say, your 401(k), there are some funds -- or, more precisely, some fund managers -- whose services are worth paying for, because they are superior investors who are simultaneously fee-conscious.

We put together this How-To Pick the Best Mutual Fund Guide (which you've already started right here -- pretty painless, eh?). It puts your mutual funds through the paces to help you spot the gems and dump any losers you might own. Read on, for free, some major excerpts from the first several lessons. Should you choose to go on (and shell out a reasonable $30), in later lessons we describe the five qualities we look for in fund managers (it's not simply eye-popping three-year returns) and name a few Fool-Friendly FundsT that have proven their worth over time. If by then you find yourself eager to switch from one fund to another, step 7 will outline the tax consequences associated with making that move. It will also give you a few tools to try to minimize the tax burden.

This guide will walk you through how to:

• Assess the costs of a mutual fund, taking all fees into account.
• Measure the after-fee returns of mutual funds and compare them to an index fund.
• Define a superior fund in qualitative and quantitative terms.
• Locate an outperforming fund.
• Calculate the cost basis of your fund for tax purposes.
• Determine the best strategy for minimizing the tax effects of selling your fund.

Read on to see how we narrow down the world of mutual funds and what criteria make a Fool-Friendly Fund.