The Great Mutual Fund Trap: How Americans Are Losing Billions to the Mutual Fund and Brokerage Industries– and How You Can Earn More with Less Risk
The Great Mutual Fund Trap: How Americans Are Losing Billions to the Mutual Fund and Brokerage Industries– and How You Can Earn More with Less Risk
Convinced that your star mutual fund manager will help you beat the market? Eager to hear the latest stock picking advice on CNBC? FORGET ABOUT IT! The Great Mutual Fund Trap shows that the average mutual fund consistently underperforms the market, and that strategies for picking above-average funds — everything from past performance to expert rankings — are useless. Picking individual stocks on the advice of brokers and analysts works no better. The only sure things are the fees and commissions you’ll pay.
Fortunately, the news is not all bad. Investors willing to ignore the constant drumbeat of “trade frequently,” “trust the experts,” and “beat the market” now have the opportunity to do better. Using new investing products investors can earn higher returns with lower risks.
Drawing on their years of Wall Street, Treasury and Federal Reserve experience, Gary Gensler and Gregory Baer offer a fresh and realistic look at how money is managed in America. From new indexing strategies to risk-managed stock selection, The Great Mutual Fund Trap offers investors an escape from high costs and immunity from seductive marketing messages.
From the Hardcover edition.If you’ve been burned on Wall Street (and who hasn’t?) but still need a practical place to park your savings (who doesn’t?), Gregory Baer and Gary Gensler have your number. While somewhat mistitled because it decries “active investing” in individual stocks as well as in mutual funds, The Great Mutual Fund Trap is nonetheless a clearly and even entertainingly written argument in favor of the alternative: investing broadly in stocks that mirror the performance of the overall market. During their years in private investment and with the U.S. Treasury and Federal Reserve, Baer and Gensler have come to believe the high fees and high risks that go with always trying to beat the market make “active investing”–be it constantly fiddling with your own portfolio or relying on professionals to do so for you–a no-win proposition. Instead, they say, you can actually improve returns by shifting to “passive investments” that offer lower costs and greater tax efficiency. After explaining why they feel as they do, the authors thoroughly describe the appropriate vehicles–index mutual funds, exchange-traded index funds, and several other products–in a way that makes these staid options seem almost exciting and gives interested readers all the tools they need to utilize them. –Howard Rothman
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Leave a commentAll About Mutual Fund Investments
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Definition
One definition of Mutual fund states that they are mutually admitted assets invested in different securities. Shareholders are issued bonds as grounds of their control and benefit proportionately in the earnings of the fund.
Various mutual fund options
One of the vital factors that an individual must study when looking at various mutual fund options is that if their money should be an actively managed fund or an indexed fund. All assets include individual stocks, but an actively managed fund will modify these stocks on a regular basis in an endeavor to acquire as much profit as possible. Indexed assets are intermeshed around specific index containing a good cross section of the stocks within this index. The shares are rarely traded and the performance is usually indicates the sole performance of the index. While it is wise to consider the gains form certain sectors, you also should be cautious about sectors that can be adversely affected by a single factor.
Some of the benefits of mutual fund
As in any other investment opinions differ, some suggest that mutual funds do not have a diverse investment potential, whereas other argue that there are a number of advantages in mutual funds.
Mutual funds adapt a strategy to invest funds in various investments, which is the key to high profits. As mutual funds do not compel clients to invest big money, the low investment capital encourages even the small investor to utilize the opportunity to earn high profits. Purchasing mutual funds certificates or selling them is very easy, which makes it convenient for every type of investor. As mutual funds are managed by professionals with good experience in investments, the chances of high profit is greater than in other investments made by an individual.
Safety concerns
As far as mutual funds are concerned safety of the investments are not guaranteed. Moreover the performance of the mutual fund highly depends on the expertise of the managing professionals. With no assurance of guaranteed profits and possibilities of losing money in case of major change in economy, mutual funds only become a secondary or tertiary option for long term investors. However, most short term investors have gained much by investing in the mutual funds only at their own risk.
Securities and Exchange Commission which regulates the mutual funds ensures that all mutual funds are set up and run according to the rules of the government. The commission also sees to that there is a certain degree of transparency between the mutual funds and the investors. It also ensures that other costs and fees of the mutual funds are properly documented so that it gives the investor a crystal clear picture of their investments.
How to Invest in Mutual Funds, Nightly Business Report
How to Invest in Mutual Funds, Nightly Business Report
BRAND NEW and UPDATED! Nightly Business Report takes the opportunity to update its popular special edition and award-winning home video, How To Invest In Mutual Funds. Co-anchored by Paul Kangas and Susie Gharib, the program still deals with such matters as the origins of mutual funds, the role of the portfolio manager, Net Asset Values (NAVs), what to look for in a fund, and how to evaluate fund performance.
But in view of developments over the past decade, the new version also covers the pros and cons of non-managed funds such as index funds and ETFs. Additionally, the advantages and risks of using mutual funds to invest in foreign stocks is examined as will changes in mutual fund regulation.
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Mutual Fund Broker Business Plan – MS Word/Excel
- Easy to Use 3 Year MS Excel Financial Model
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The Mutual Fund Broker Business Plan is a comprehensive document that you can use for raising capital from a bank or an investor. This document has fully automated 3 year financials, complete industry research, and a fully automated table of contents. The template also features full documentation that will help you through the business planning process. This is a full and complete business plan with original research, financial models, and marketing/advertising plans that are specific for a Mutual Fund Broker. Since 2005, BizPlanDB and its parent company have helped raise more than 0,000,000 through its developed plans.
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Mutual Funds 101
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Money makes the world go round, and don’t we all know it! All of us are looking for ways to get ahead financially. Mutual funds are one way to increase your net worth by becoming involved in collective investing. Investing in mutual funds reduces the risks of individual trading by making you part of a collective of investors. These mutual funds can provide you with a prospectus of fees and their past performance to help you make the right decision about where to put your money. Independent rating services will also guide you in finding a mutual fund that has the same goals as you.
The Basics of Mutual Fund Investment
You may be wondering “what are mutual funds?” Not everyone has a huge deal of knowledge about investing and stocks. Many of us have some money tucked away for a rainy day, and a little in our superannuation. Now, more than ever, is the time to understand how to make your money work for you. Mutual funds pool together money from numerous investors and invest this collective sum into stock, bonds and various other investments. Your money is professionally managed with the aim of benefiting all shareholders in the mutual fund. The risk of losing money is reduced by diversifying the investments. Also, mutual funds are cost efficient. Investing money together increases buying power and reduces operating costs per person. A major perk of investing in mutual funds is that it’s a lot more liquid than other forms of investment, so if you’re finding yourself a little short of cash you can actually sell some of your funds shares.
Investing Your Money In Mutual Funds
Investing in a mutual fund means that you have access to the services of a mutual fund manager. This means a professional is handling the daily trading of assets on your behalf. A mutual fund manager oversees the investment portfolio, and is responsible for finding the best possible returns for the invested dollar.
You can choose to invest your money in lump sums or with automatic investment. Lump sum investment in a mutual fund will typically mean you can invest as much or as little as you have, provided that it is above the minimum requirements of the fund. Automatic investment can help you save money on a regular basis, by transferring a part of your income into the fund on a regular basis.
Making Money From Mutual Funds
The value of a mutual fund is divided into shares, and the value of each share is determined at the end of every trading day. Money is earned in appreciation, dividends or capital gains distribution. It’s important that you look at the past performance when you choose a mutual fund, because not all are equal. Don’t forget to take into account fees and expenses against the average yearly return.
How You Can Benefit From Mutual Funds?
All investment comes with risk. It is possible to lose money invested in mutual funds. Long term, this risk can be managed with some strategic investing, but can be a little disconcerting in the short time. Investments have the potential to both increase and decrease in value, in line with economic change, but in the long term investments do tend to increase with time. These same risks are found in the housing market and traditional stock trading. Mutual funds reduce the risks slightly with the ability to weather some financial instability due to diverse investing.
If anyone you know is still asking “what are mutual funds?” it’s time to let them in on our little secret. Mutual funds are a relatively low risk way to make the most of the money you have. By investing with others you’re able to make the most of the money you have and increase your assets. Your mutual fund manager handles the investment decisions for you whilst your net worth continues to increase over time.
All About Bonds, Bond Mutual Funds, and Bond ETFs, 3rd Edition (All About… (McGraw-Hill))
All About Bonds, Bond Mutual Funds, and Bond ETFs, 3rd Edition (All About… (McGraw-Hill))
Access the unprecedented potential of bond investing!
Bonds have come a long way in recent years. No longer just a relatively safe and secure investment, bonds now offer the potential for capital appreciation in addition to interest income. All About Bonds, Bond Mutual Funds, and Bond ETFs is the key to understanding both traditional and new types of bond investments.
This detailed but accessible introduction covers everything from basic bond characteristics to fixed-income investment techniques. You’ll gain a thorough education on such topics as yield, liquidity, duration, convexity, valuation, and emerging markets and find the answers to many questions a bond investor will ask, such as:
- What percentage of my portfolio should be dedicated to bonds?
- What are the newest products and where do I find them?
- What are the risks involved with investing in bonds, bond mutual funds and bond ETFs?
- How can I use the Internet to my advantage?
Whether you’re involved in the bond market already or about to enter it, All About Bonds, Bond Mutual Funds, and Bond ETFs will guide you though the process of choosing the best bonds for your needs, evaluating their performance, and managing a bond portfolio.
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Posted in Mutual Funds | About, Bond, Bonds, Edition, ETFs, Funds, McGrawHill, Mutual | Leave a commentLong short mutual Fund Basics
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The long short mutual fund is simply a mutual fund that uses hedge fund trading strategies. The difference of long short mutual funds versus the average mutual fund is that they use short positions in addition to leverage and derivatives to try to maximize returns no matter what the market conditions are. There are laws that control how many short positions and derivatives may be used in a long short mutual fund, so there are controls governing how successful these funds can be. The majority of investments in a long short mutual fund are in stocks so there are certainly risks out there. Why Invest in a Long short mutual Fund? Many investors are unaware of the long short mutual fund and don’t know why it would be beneficial. Basically, a long short mutual fund is the method created by the mutual fund industry to offer the average investor hedge fund advantages. The advantage the long short mutual fund has over a traditional hedge fund is that the fees are generally lower and there is no lock in period that applies. On the other hand, the fees associated with the long short mutual fund will be higher than the majority of mutual funds and liquidity is also lower. The long short mutual fund is different from mutual funds as well on the minimum investment front. In most cases investors will need to invest a minimum of ,000 or more. Not every long short mutual fund has this much of an investment requirement, but many do. On the other hand, the short fund can’t include as many short positions, derivatives, and leverage as the hedge funds are allowed to. Nevertheless, investors will find the long short mutual fund diversifies their portfolio when the market is down. Of course, today’s investors are wary of putting all their eggs in one basket, so to speak, and diversification truly is necessary to reduce the chances of losing everything in a volatile market. Luckily, investors taking advantage of the benefits of the long short mutual fund will be able, in principle, to make money when the market is both up and down. Keep in mind the long short mutual fund is a recent innovation. However, many investors and fund managers are hopeful that this type of investment will play out the way everyone hopes it will. Time is the only way to find out whether the long short mutual fund is worthy of its newfound popularity.
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Investing for Income: A Bond Mutual Fund Approach to High-Return, Low-Risk Profits Reviews
Investing for Income: A Bond Mutual Fund Approach to High-Return, Low-Risk Profits
Fresh, easy-to-understand insights into maximizing income while lowering risk. Investing for Income demonstrates the convincing reasons that bond funds are the nearly perfect investment. For the millions of investors who dream of earning high returns without subjecting themselves to stock market risks, this is the ideal book.
Using clear, concise language, it demystifies the bond market, from the basics of fixed income investing through more advanced investment strategies, and return and risk analysis. For ease of use, it lists top bond funds by category and covers how to assess a fund’s management team and select a fund. It also shows investors how to build a strong bond portfolio that complements stock and stock fund holdings.
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Posted in Mutual Funds | Approach, Bond, Fund, HighReturn, Income, Investing, LowRisk, Mutual, Profits, Reviews | Leave a commentChoosing The Best Mutual Fund For Investments
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Mutual funds are the best options since you can broadly diversify by owning a large array of stocks or an investment instrument. In addition to this, they also allow you to acquire a handsome income over a period of time.
A mutual fund investment allows you a good amount of leverage since the risks are minimized. There are a lot of factors you might need to take into consideration, if you want to make some good amount of money.
Benefits of Mutual Funds
Before we go into discussing the factors for choosing the best mutual funds, let us talk about some of the benefits of these funds:
Affordability: Depending on the investment objective of the scheme, mutual funds can be invested in a number of assets like bonds, shares etc. Investors can easy go in for the purchase of a portfolio of investments through mutual funds, which would otherwise be expensive in the given circumstances.
Diversification: Mutual fund allows investors to diversify their investments across different securities and different sectors. By doing so, it helps to stabilize the returns of the investors by protecting their investments.
Variety: Investors have a lot of options to choose from when it comes to mutual funds. Variety in schemes allows investors to choose according to their needs and risk appetites. In addition to this, investors can also invest in both debt and equity through such schemes.
Automatic Reinvestment: Investors who are looking at reinvesting opportunities can effortlessly have their capital gains and dividends reinvested in their mutual funds without any extra fees.
Offer Liquidity: Mutual funds offer liquidity to the investors. In simple words, at the time of selling mutual funds, the proceeds from the sale are easily available the day after the mutual funds are sold.
Low Minimums: Many of the mutual fund companies allow investors to start at an low entry level with as minimum amount as possible.
Choosing Mutual Funds For Investment
The greatest thing of selecting mutual fund investment is that investors do not have to manage each and every fund. All this is handled by the asset manager. Some of the factors that one has to take into consideration while choosing best mutual fund are as follows:
Checking Past Records: If the performance in the recent years in not up to the mark, then it might not be really worth investing in. Informational research on mutual funds gives a better idea about the stability and fund performance.
Ranking: Investors may come across many online websites that offer ratings for different fund houses based on their performance, tax efficiency and consistency on returns. Business journals and periodicals might also prove to be an effective tool.
Board of Advisory: Another factor that needs to be taken into consideration is the track record of the board of advisory. The board comprises of asset managers who are responsible for the performance of the funds in the market.
Conclusion
Finally we can conclude that a mutual fund offers a simple and efficient solution for investing for retirement, education and it also allows investors to meet their financial goals.
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The Bold Truth About Mutual Funds
The Bold Truth About Mutual Funds
Adam Bold, whose Mutual Fund Store concept and radio show are sprouting in cities across the nation, offers bare-knuckles advice on what to look for – and watch out for – when investing in mutual funds. Inside, you’ll find Adam’s 10 Commandments of Mutual Fund Investing – advice on everything from knowing yourself and your investment goals, to understanding the mutual-fund scandals that have plagued the industry. Also hints on: – Picking a mutual fund. – Selecting your investment adviser. – Knowing how your adviser gets paid. – Creating and sticking to a plan. The Bold Truth About Mutual Funds is an excellent guide to one of our most popular forms of investment.
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Kiplinger’s Guide to Investing Success: Making Money Today in Stocks, Bonds, Mutual Funds, and the Real Estate (Kiplinger’s Personal Finance)
Investing can often be like riding a roller coaster—your portfolio will likely experience euphoric gains and nail-biting loses. With choices ranging from stocks and bonds to mutual funds and real estate, the need for sound financial advice has never been greater.
The updated Kiplinger’s Guide to Investing Success, from the editors of Kiplinger’s Personal Finance magazine, will give you the knowledge and perspective you need to reach your investing goals—from how to define those goals to tips for creating a diversified portfolio with the most effective investment vehicles to help you reach them.
Kiplinger’s Guide to Investing Success includes valuable worksheets, charts and graphs as well as standard financial formulas and a glossary of terms. People of all income levels will find this book a “”must-read”" for creating the right investment plan.
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TheStreet.com Ratings Guide to Bond & Money Market Mutual Funds, Winter 2007/200
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Invest in Top Mutual Funds and Witness Exponential Growth
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Indian mutual funds industry originated in the year 1963 when Government of India and Reserve Bank of India came together to form the Unit Trust of India. UTI ruled the mutual fund industry till 1987 till nationalized bank set up mutual funds and insurance companies. Mutual funds of India saw drastic changes in 1993 when private sector fund houses emerged in the market.
Mutual funds are considered as one of the unique financial tools in India. It has a bright future even if it has to undergo highs and lows.
Investment does mean that there is a risk involved. Quite a lot of people do not invest too much in a single position. In a way they manage risk by just not taking it in the first place.
There are short term, middle term and long term investments in mutual funds. In order to witness exponential growth you will need to invest your money in top mutual funds. People having excess money but no time to invest in stocks may find mutual funds to be the best option.
There are lots of companies that have evolved with time and have been performing well in the market. These days’ mutual funds are considered to be safe by almost all the investors. It gives you an opportunity to attain various stocks and bonds.
Top mutual funds have the best fund managers who have a vast exposure in the market. There are various kinds of funds and your fund manager can suggest you the paramount option according to your requirement.
Mutual funds have their own set of advantages. You can start off with a very small amount which can be directly debited from your bank account on a monthly basis. You can enter this sector with a low investment and can grow steadily. Fund managers keep a track of mutual fund NAV and accordingly suggest when to sell it off.
Company that maintain records are trustworthy and you can be assured that your money is safe. Just in case if the mutual fund company falls down in the market, shareholders get the money which is equal to their ownership value in the mutual funds.
Mutual funds work well when you plan it for long term goals like financial freedom, retirement or children education. You can invest in individual stocks or closed end funds. It is always better to read in details about the various mutual funds of India before investing money.
More importantly you will need to access your own goals and the risks involved in any funds. Asset allocation is also very important or else you may find your portfolio to have funds that are all invested in the same thing. A good portfolio will have diversification and will reduce the risk.
It could be really tricky to find the best fund for you. You may like to invest in a fund whose manager thinks exactly the way you do. Important is to get comfortable with the fund manager who understand your needs and accordingly take action. You may also buy an index fund which runs on autopilot.
It is always better to read the annual report before investing. Fund manager compares the mutual fund NAV of various companies and suggests the best option. Just be careful with high risk portfolios to play safe in mutual funds market.
If you are looking to diversify your investment portfolio, you should look into mutual funds in addition to individual stocks. One other benefit is that the variety of businesses in which you are investing your money is determined by an expert fund manager whose success depends on how well this particular fund performs. The trouble with mutual funds is that there are fees applied because you have to pay for the fund’s supervision, which is subtracted automatically from the fund’s worth. Additional charges and fees can negatively affect the income your investment generates. It is extremely advisable to check out the various types of fee that are charged by a mutual fund company before investing even in the best of funds. mutualfundsthatbenefit.com Morningstar’s website offers some of the best mutual fund advice aroundThe best performing mutual funds can be easily located using this resource. The websites offers much no cost information, and the best performing mutual funds are divided into classes that you may search to find the fund most appropriate for your investing style. The best performing mutual funds are listed on the left margin of the site. mutualfundsthatbenefit.com I also frequently use MSN’s Money website to gather data about the mutual funds that are performing the best. Like Morningstar, this site gives concise information on the best performing mutual funds; but, it is the “Expert Picks” part of the site which is most significant. Observing a professional …
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The ETF Handbook, + website: How to Value and Trade Exchange Traded Funds (Wiley Finance)
The ETF Handbook, + website: How to Value and Trade Exchange Traded Funds (Wiley Finance)
The first technical guide to ETFs geared towards professional advisors, institutional investors, and financial professionals seeking to understand the mechanics of ETFs
Author/trader Dave Abner has created The ETF Handbook as a resource for everyone utilizing these sophisticated tools. With this book as your guide, you’ll learn from a professional ETF trader with practical guidance for valuation and best execution techniques.
This reliable handbook skillfully touches upon the technical details of ETFs not covered elsewhere. From the mechanics of ETF development to pricing and valuation techniques, this guide provides a complete background on ETF mechanics and offers extensive insights on using them from a professional’s perspective. It addresses how to position ETFs efficiently within a portfolio, and examines who ETF users are and how the funds are employed. Along the way, Abner also offers recommendations on where to find data related to these financial instruments.
- Contains the technical ETF information needed by today’s financial professionals
- Includes pricing and valuation spreadsheets and an instructional webinar that walks you through the world of ETFs
- Touches upon topics such as calculating NAV (net asset value) and best practices for executing ETF order flow
Filled with in-depth insights and expert advice, The ETF Handbook contains ETF information that is critical for virtually every financial professional.
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Latest Trends of Mutual Funds in India
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Today there are plenty of investment avenues open. Some of them include banks deposits, bonds, stocks, mutual fund investments and corporate debentures. Investors may invest money in banks, bonds and corporate debentures where the risk is low and so are the returns. On the contrary, stocks of companies have high risk but the returns are also proportionately high.
The recent trends since last year clearly suggest that the average investors have lost money in equities. People have now started opting for portfolio managers who have the expertise in stock markets. There are many institutions in India which provide wealth management services. An average investor has found refuge with the mutual funds.
There have been a lot of changes in the mutual fund industry in past few years. Lots of multinational companies have bought their professional expertise to manage funds worldwide. In the past few months there has been consolidation going on in the mutual fund industry. Mutual funds in India now offer a wide range of schemes to choose.
Mutual funds are turned to be the most preferred choice worldwide for both small and big investors due to their numerous advantages. It’s all about long term financial planning. These benefits mainly include diversification, professional management, potential of returns, efficiency and easy to use.
Mutual fund investments carry low risk because of their diversified nature. It is important to understand the benefits of mutual funds before investing the money you really care about.
The size of Indian mutual fund industry has grown in recent few years. India can now boast of having dominance in this industry. The total Asset Under Management popularly known as AUM has increased from Rs.1, 01, 565 crores in January 2000 to Rs.5, 67, 601.98 crores in April 2008.
According to the Association of Mutual Funds in India, the growth of mutual fund industry has been exceptional. This industry has indeed come a very long way with only 34 players in the market and more than 480 schemes.
One of the major factors contributing to the growth of this industry has been the booming stock market with an optimistic domestic economy. Second most important reason for this growth is a favorable regulatory regime which has been enforced by SEBI. This regulatory board has improved the market surveillance to protect the investor’s interest.
NAV is directly proportionately to the bearish trends of the market. Top mutual funds also suffer because of the fluctuations in the market. The pooled money is invested in shares, debentures and treasury bills and thus has high risk involved.
Indian mutual funds however reveal this multi-dimensional avenue and all the intricacies in a highly fashionable manner. It provides a lot of scope to understand the scenario and make some thoughtful investments for decent returns.
In order to invest in the best mutual funds, it is important to perform a comparative study. It is important to study about the returns given by AMC Mutual Funds and perform a comparative analysis. Remember, every problem has several researches involved in it, each backed by study.
Some of the top mutual funds in India are:
• Reliance Mutual Fund
• UTI Mutual Fund
• Kotak Mutual Fund
• HDFC Mutual Fund
• Prudential ICICI Mutual Fund
Dave explains why it is a better idea to buy Mutual Funds over stocks.
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The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Invests Today
The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Invests Today
- ISBN13: 9780312339876
- Condition: New
- Notes: BRAND NEW FROM PUBLISHER! BUY WITH CONFIDENCE, Over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed
A revised and updated edition of an investment classic, The Only Guide to a Winning Investment Strategy You’ll Ever Need remains clear, understandable, and effective. This edition contains a new chapter comparing index funds, ETFs, and passive asset class funds, an expanded section on portfolio care and maintenance, the addition of Swedroe’s 15 Rules of Prudent Investing, and much more.
In clear language, Swedroe shows how the newer index mutual funds out-earn, out-perform, and out-compound the older funds, and how to select a balance “passive” portfolio for the long hail that will repay you many times over. This indispensable book also provides you with valuable information about:
- The efficiency of markets today
- The five factors that determine expected returns of a balanced equity and fixed income portfolio
- Important facts about volatility, return, and risk
- Six steps to building a diversified portfolio using Modern Portfolio Theory
- Implementing the winning strategy
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Posted in Mutual Funds | Ever, Guide, Investment, Invests, Money, Need, Only, Smart, Strategy, Today, Winning, You'll | Leave a commentRole of Mutual Funds and Its Types
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ROLE OF MUTUAL FUND AND ITS TYPES
Ms. Sonali Gopal Kale,
Sr. Lecturer,
Yadavrao Tasgaonkar School Of Business Management,
Bhiwpuri Road, Karjat.
27th November, 2010
A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When one invest in a mutual fund, they are actually buying shares (or portions) of the mutual fund and become a shareholder of the fund.
Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. Diversification is the idea of spreading out investor’s money across many different types of investments. When one investment is down another might be up. Choosing to diversify your investment holdings reduces your risk tremendously. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks (even hundreds or thousands). Beyond that, one can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on.
Types of mutual funds:-
1. Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund:- An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund:-A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
2. Fund according to Investment Objective:
A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme:- The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme:- The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund:- The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund:- These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund:-These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds:-Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “tracking error” in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
5 Reasons To Bid Your Mutual Fund Goodbye
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Advice on when you must invest in a mutual fund is available dime a dozen. But it takes a certain degree of expertise and proficiency to redeem your mutual fund investment at the right time. Since this is the dilemma that many investors grapple with, we have outlined the five most critical reasons for redeeming your mutual fund investment.
At the outset, it is important to note that the ‘right time to redeem’ does not mean that there is a timing element involved over here. Rather the right time to redeem means when the time is up on your mutual fund investment and it is no longer prudent to hold on to it.
We have narrowed it down to the five most pervasive reasons.
1. When you have achieved your investment objective
A mutual fund investment is made with the intent of achieving a specific investment objective. Some of these investment objectives include, among others, planning for child’s education, planning for retirement, saving for a house/car. If you haven’t achieved your investment goal, there is no reason to redeem your mutual fund (assuming, of course, that it is performing on expected lines). When you have achieved or are close to achieving your investment objective, you should stagger your mutual fund redemptions so that you are completely liquid (i.e. in cash) when it is time to realise the investment objective (i.e. pay your child’s college fees or buy the house).
2. When your mutual fund revises its mandate
Mutual funds have an investment mandate. The mandate sets the ‘guidelines’ for fund managers about how they should manage their funds. Since the mandate is formally stated, investors know about this beforehand and invest in the fund if they believe that it will enable them to achieve their investment goals. Mutual funds are known to revise their mandates if they believe that the existing mandate does not serve the mutual fund’s interests anymore. For instance, in the recent past a leading private sector fund house converted its index fund into an actively managed fund.
3. When the star fund manager quits
A category of investors track the fund managers more than they track the fund house and its schemes. These investors invest in a mutual fund relying mainly on the star fund manager’s investment prowess and skills. At Personalfn, we discourage investors from falling prey to this trend; investing in process-driven fund houses is a more reliable way of investing than betting on star fund managers. Nonetheless, if you have invested in a fund based on the star fund manager appeal, then your investment decisions should correspond with the fund manager’s migration (across fund houses). If he quits the present fund house, then there is a case for you to redeem your investments because it is unlikely that the rest of the fund management team will be able to replicate the performance in the star fund manager’s absence.
4. When your mutual fund is not performing
At Personalfn, we often hear of investors complaining about the below par performance of their mutual fund investments. Our advice to them is to be patient and evaluate their investments over an appropriate time frame and with the right perspective. For instance, equity funds should ideally be evaluated over the long-term (at least 3 years). Taking a decision in haste without understanding the investment proposition of the mutual fund could prove counterproductive and expensive (if there is an exit load). However, all points considered, if you and your financial planner are convinced that your mutual fund is a dud, then its best that you redeem it.
5. When you have invested in a thematic fund
Although at Personalfn we recommend that investors avoid thematic funds, the reality is that thematic funds are a feature in the portfolios of many investors. Some of these investors are well-informed and have a view on the underlying theme/sector. However, for a vast majority of investors, thematic funds are an unknown entity simply because they do not have the necessary skills and resources to track the underlying sector/theme. They only got invested in them either because everyone they knew was investing in them or their agent made a compelling marketing pitch for the fund. Either ways they are invested in the fund and want to know when they can redeem. If you are one of them, then the right time to redeem your thematic fund is when the stock markets give you the opportunity. Since a rising tide lifts all boats, it is likely that the performance of the underlying theme/sector will improve in a stock market rally. That is an opportunity for you to sell that thematic/sector fund that you always wanted to redeem but could not because of unsuitable market conditions.
Another investment that you can redeem in a stock market rally is the dud that you invested based on a ‘hot tip’ and have regretted ever since. These funds are like deadwood in your portfolio, which you should never have invested in, in the first place. But having invested in them, make the most of a stock market rally to either redeem at a profit or to minimise losses.
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