Ways To Earn Good Profit Out Of Mutual Fund It Is More Of Commonsense Than An Art Or Science
Mutual funds are the vehicle that help normal individuals to invest together in equity and debt market without taking too much of risk. The mutual funds are created with predetermined investment objectives, to suit different kind of investors. More over mutual funds are made in such a way that they achieve a variety of risk/reward objectives. However, the right way to benefit from mutual funds is to balance the risk as well as the potential to earn. That's the reason, identifying the right level of risk tolerance, choosing the right schemes and allocation to the right asset class remains the most important factors in ensuring success from a mutual fund portfolio.
First point is the right funds in your Portfolio
When we select funds we need to make sure that we need to have right mix of right funds. For that we need to keep in mind your profile and the kind of fund that matches your profile. If you are a conservative investor, the composition of your portfolio would be different from someone who may have different risk profile and time horizon such as aggressive.
Moreover If you have created a portfolio of different equity funds, and wish to invest more in equity over a period of time. Make sure that you keep an eye over the exposure to all the sectors in which the funds have invested in. we need to look over the fund houses and fund managers styles, strategies, and philosophies. There is a difference between different fund manager's style and strategies to a good level. The fund houses are very particular to their fund management philosophies and management style. The fund management style is further reflected in the performance of the funds they have.
As far as fund management style is considered we need to look at the performance of their funds over a period of time. To perform consistently over a period of time is not an easy task. Only few funds have been able to perform at a consistent rate. These fund houses and fund managers do follow certain styles which further become the core of the fund philosophies
As a Tax payer - Make use of its hidden potential
Equity Linked Savings Schemes (ELSS) are the best instrument that provides an investment option that provides you an affective and safe way to investing in equity market and save taxes. If we take this particular fund as a product it is quiet sure to give good returns over a period of time. Over a period of time equities have the potential to provide better returns compared to other instruments. These ELSS funds being equity oriented provide returns which can be really appreciable. ELSS have the potential to provide better returns than most of the options under Section 80C.
One of the important features is the tax efficiency in terms of returns earned through them. It is important considering that ELSS also aims to distribute income by way of dividend periodically depending on the distributable surplus. Moreover an SIP in any ELSS scheme will help you to save more by investing more, as you save more of taxes. More over the long-term capital gains can be very attractive and is again tax free.
Re-balance your portfolio if required
Ensure that the exposure of your equity portfolio to different market segments i.e. large cap, mid cap and small cap is in the right proportion. If not, you need to realign it according to your risk profile, time period and investment objective. You might need to scuffle the portfolio a bit in order to get it in right shape. An existing investor, need to make sure that the portfolio does not include too much of funds without any proper planning and allocation. The first step in towards rebalancing your portfolio is checking out which funds are not performing up to the mark. For this, the right way would be to compare the performance of your schemes with the benchmark and other funds in the same group. In the case of some non-performing schemes we need to remove them out through the redemption process in phases. We need to take notice towards the exposure to different sectors in the portfolio . While rebalancing the portfolio, the focus should be on those schemes in the portfolio that have been performing consistently and have a good quality portfolio.
Why You Should Buy No Load Funds
Load is defined as the fee or the commission that an investor pays to a mutual fund at the time of purchasing or redeeming the shares of the mutual fund.
If the commission is charged when the investor buys the shares, it is known as a front-end load. On the other hand if the commission is charged when the investors redeems his shares, it is known as a back-end load.
Certain funds apply back-end loads only if the shares are redeemed within a specific time period after being bought.
The argument for applying loads on mutual fund transactions is that these loads will discourage investors from trading frequently in mutual funds. If the investors quickly move in and out of mutual funds, the funds have to maintain a high cash position to meet these redemptions, which in turn decreases the returns of the funds.
Also frequent trading means the expenses of the mutual funds go up.
There are various arguments against load funds:
-The fees that the mutual funds collect as loads are passed on to the fund brokers. The loads do not provide any incentive for the fund manager for better performance of the funds. In other words, a load fund has no reason why its managers should perform better than those of no-load funds.
-In the last few decades, no difference has been seen in the returns of load and no-load funds (if the loads are not considered.) When the loads are considered, the investors of load funds have actually gained less than the investors of no-load funds.
-When a sales person knows that he is going to get a commission from a load fund, he tends to push the load fund more - even when the load funds are performing poorly as compared to no-load funds.
-Loads are understated by mutual funds. If an investor invests $1000 in a fund with 5% front-end load, the actual investment is only $950. Thus his actual load is $50 in $950 investment - a 5.26% load.
If an investor is already invested in a load fund, it doesn't make sense to exit now. The load has already been paid for. The hold or sell decision should now only be based on what the investor thinks about the future performance of the fund. In a few funds, the exit load depends on the period for which the fund was held. Check the details of the fund prospectus for more information.
In most cases it is better to avoid load funds; however, investors should keep one thing in mind. Sometimes load funds can be a better choice than no-load funds. For example, an investor has a choice of two classes in a fund - class A and class B. Class A has 3% front-end load and Class B has no load. The investor however misses the fine print, which states that Class B has 1% 12b-1 annual fees.
If the fund will make 10% gains each year, its return in Class A (starting with actual amount invested $970) will be
($970) X (1.10) X (1.10) X (1.10) X (1.10) X (1.10) = $1562
For Class B, the returns will be
($1000) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) = $1532.
Thus the above example is an exception, where in the long run, the load fund will perform better than the no-load fund (with 12b-1 fees).
The fact is that a no-load fund cannot be considered a true no-load fund, if it charges fees from it's investors in the form of 12b-1 and other fees.
Mutual Funds Protect Yourself With Segregated Funds
Segregated funds were initially developed by the insurance industry to compete against mutual funds. Today, many mutual fund companies are in partnership with insurance companies to offer segregated funds to investors. Segregated funds offer some unique benefits not available to mutual fund investors.
Segregated funds offer the following major benefits that are not offered by the traditional mutual fund.
1. Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Thus, there is a 100 percent guarantee on the investment at maturity or death (this may differ for some funds), minus any withdrawals and management fees - even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.
2. Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.
3. Segregated funds avoid estate probate fees upon the death of the investor.
4. Segregated funds have a "freeze option" allowing investors to lock in investment gains and thereby increase their investment guarantee. This can be powerful strategy during volatile capital markets.
Segregated funds also offer the following less important benefits:
1. Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.
2. Segregated funds can serve as an "in trust account," which is useful if you wish to give money to minor children, but with some strings attached.
3. Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.
There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.
However, with further market volatility these guarantees could be very worthwhile. In addition, most major mutual fund companies also offer segregated funds.
Mutual Funds An Introduction And Brief History
Each one of us does not have the expertise or the time to build and manage an investment portfolio. There is an excellent alternative available - mutual funds.
A mutual fund is an investment intermediary by which people can pool their money and invest it according to a predetermined objective.
Each investor of the mutual fund gets a share of the pool proportionate to the initial investment that he makes. The capital of the mutual fund is divided into shares or units and investors get a number of units proportionate to their investment.
The investment objective of the mutual fund is always decided beforehand. Mutual funds invest in bonds, stocks, money-market instruments, real estate, commodities or other investments or many times a combination of any of these.
The details regarding the funds' policies, objectives, charges, services etc are all available in the fund's prospectus and every investor should go through the prospectus before investing in a mutual fund.
The investment decisions for the pool capital are made by a fund manager (or managers). The fund manager decides what securities are to be bought and in what quantity.
The value of units changes with change in aggregate value of the investments made by the mutual fund.
The value of each share or unit of the mutual fund is called NAV (Net Asset Value).
Different funds have different risk - reward profile. A mutual fund that invests in stocks is a greater risk investment than a mutual fund that invests in government bonds. The value of stocks can go down resulting in a loss for the investor, but money invested in bonds is safe (unless the Government defaults - which is rare.) At the same time the greater risk in stocks also presents an opportunity for higher returns. Stocks can go up to any limit, but returns from government bonds are limited to the interest rate offered by the government.
History of Mutual Funds:
The first "pooling of money" for investments was done in 1774. After the 1772-1773 financial crisis, a Dutch merchant Adriaan van Ketwich invited investors to come together to form an investment trust. The goal of the trust was to lower risks involved in investing by providing diversification to the small investors. The funds invested in various European countries such as Austria, Denmark and Spain. The investments were mainly in bonds and equity formed a small portion. The trust was names Eendragt Maakt Magt, which meant "Unity Creates Strength".
The fund had many features that attracted investors:
-It has an embedded lottery.
-There was an assured 4% dividend, which was slightly less than the average rates prevalent at that time. Thus the interest income exceeded the required payouts and the difference was converted to a cash reserve.
-The cash reserve was utilized to retire a few shares annually at 10% premium and hence the remaining shares earned a higher interest. Thus the cash reserve kept increasing over time - further accelerating share redemption.
-The trust was to be dissolved at the end of 25 years and the capital was to be divided among the remaining investors.
However a war with England led to many bonds defaulting. Due to the decrease in investment income, share redemption was suspended in 1782 and later the interest payments were lowered too. The fund was no longer attractive for investors and faded away.
After evolving in Europe for a few years, the idea of mutual funds reached the US at the end if nineteenth century. In the year 1893, the first closed-end fund was formed. It was named the "The Boston Personal Property Trust."
The Alexander Fund in Philadelphia was the first step towards open-end funds. It was established in 1907 and had new issues every six months. Investors were allowed to make redemptions.
The first true open-end fund was the Massachusetts Investors' Trust of Boston. Formed in the year 1924, it went public in 1928. 1928 also saw the emergence of first balanced fund - The Wellington Fund that invested in both stocks and bonds.
The concept of Index based funds was given by William Fouse and John McQuown of the Wells Fargo Bank in 1971. Based on their concept, John Bogle launched the first retail Index Fund in 1976. It was called the First Index Investment Trust. It is now known as the Vanguard 500 Index Fund. It crossed 100 billion dollars in assets in November 2000 and became the World's largest fund.
Today mutual funds have come a long way. Nearly one in two households in the US invests in mutual funds. The popularity of mutual funds is also soaring in developing economies like India. They have become the preferred investment route for many investors, who value the unique combination of diversification, low costs and simplicity provided by the funds.
Hedge Funds Establishing A New Frontier
It is difficult to provide a general definition of a hedge fund. Initially, hedge funds would sell short the stock market, thus providing a "hedge" against any stock market declines. Today the term is applied more broadly to any type of private investment partnership. There are thousands of different hedge funds globally. Their primary objective is to make lots of money, and to make money by investing in all sorts of different investments and investments strategies. Most of these strategies are more aggressive than than the investments made by mutual funds.
A hedge fund is thus a private investment fund, which invests in a variety of different investments. The general partner chooses the different investments and also handles all of the trading activity and day-to-day operations of the fund. The investor or the limited partners invest most of the money and participate in the gains of the fund. The general manager usually charges a small management fee and a large incentive bonus if they earn a high rate of return.
While this may sound a lot like a mutual fund, there are major differences between mutual fund and hedge fund:
1. Mutual funds are operated by mutual fund or investment companies and are heavily regulated. Hedge funds, as private funds, have far fewer restrictions and regulations.
2. Mutual fund companies invest their client's money, while hedge funds invest their client's money and their own money in the underlying investments.
3. Hedge funds charge a performance bonus: usually 20 percent of all the gains above a certain hurdle rate, which is in line with equity market returns. Some hedge funds have been able to generate annual rates of return of 50 percent or more, even during difficult market environments.
4. Mutual funds have disclosure and other requirements that prohibit a fund from investing in derivative products, using leverage, short selling, taking too large a position in one investment, or investing in commodities. Hedge funds are free to invest however they wish.
5. Hedge funds are not permitted to solicit investments, which is likely why you hear very little about these funds. During the previous five years some of these funds have doubled, tripled, quadrupled in value or more. However, hedge funds do incur large risks and just as many funds have disappeared after losing big.
Is An Index Mutual Fund The Best Choice For Long Term Investing
Do you believe that the world economy will grow? Do you believe that US economy will grow? I do. The major stock indexes are indicators of economy grow. You can make money use this opportunity buying index funds. Investing into index mutual funds is easy, interesting, and profitable. It takes 5 minutes every month! If you are long-term investor, index funds is for you!
It doesn't matter what index you choose. This index will grow due to economy sector grow rate. There are many indexes in the world. But how to get money from indexes grow?
There are many indexes mutual funds. Fund share price change accordance index performance. There are thousands of mutual funds have S&P 500 as a base of their portfolio. The differences from one fund to other are operating company and expenses. Choose fund with fell known operating company and smallest expenses.
Small expenses are very important. If fund have big expenses, the managers steal investors' money. Index fund manager don't buy expensive stock market researches, don't arrive at a difficult decision witch stock to buy. Index fund manager buy stock included into index only. It isn't expensive!
The best investment strategy for indexes mutual funds is to invest some dollar amount monthly. And be the long-term investor - invest for 10 years or more. Our computer modeling of this strategy shows that you will receive profit, if you invest on monthly base during 10 years. I can't give you guaranties that you will get profit but the probability of this is close to 100%.
And the last, if you can, diversify you portfolio. Divide you portfolio into three parts. Buy large capitalization company index fund (S&P 500, DJA), small capitalization index fund (S&P 600) and developed market index fund or international index fund. It makes you portfolio more profitable and more stable.
Going Global Through Mutual Funds
There are more than 13500 different publicly traded companies in the world today, and there are over 700 more companies expected to go public within a year. In addition, every major developed country offers investors various bonds to invest in. All of this makes for a lot of different investments and plenty of choice. Investors can take advantage of this choice through a good global balanced fund that invests in bonds and stocks or a global equity fund that invests in stocks all around the world.
A global equity fund invests in stock markets around the world. These funds will have a portion of their investments invested in North America. Europe, and Asia. Some of these funds will own hundreds of securities in order to participate in the growth prospects of many firms while diversifying the risk associated with investing in different companies. A good global equity fund will be a foundation for a well-diversified mutual fund portfolio for almost any investor. Investors could consider including the AGF International Value Fund, the BPI Global Equity Fund, or the Fidelity International Portfolio Fund in their portfolios.
A global balanced fund is a fund that invests in both stock and bond markets around the world. These funds will also always have a portion of their investments invested in stock and bond markets located in North America, Europe, and Asia. They are more conservative than global equity funds because they invest in a combination of stocks and bonds, which affect the fund's performance. Over the long term these funds will provide a lower rate of return for investors but they will also exhibit a lot less risk than a global equity fund. They exhibit less risk because bonds are less volatile than stocks; they do not decline in value to the same magnitude or at the same time as global equity funds. A conservative investor should find a good global balanced fund that will serve as a good foundation for a diversified portfolio.
How To Avoid A Bad Mutual Fund
We have all heard the advantages of investing in a mutual fund over trying to pick individual stocks. First of all mutual funds hire professional analysts that are market experts and devout many hours of study to the various stocks. Unless you want to devout a large portion of your free time to the study of the financial reports, you probably won't have as much information to make a decision as a mutual fund manager.
Then there is the well documented advantage of diversification. Risk is reduced by holding several non correlated investments. Put simply, some go up, some go down and combined, the return levels off the fluctuations, or risk.
Finally, a mutual fund offers smaller investors a chance to invest in small increments rather than having to save a large chunk of cash to purchase 100 shares of stock.
Given the above advantages, it's no wonder that mutual funds have become a very popular form of investing. Now there are thousands of mutual funds to choose from, so how does one make a selection? Here are a few tips:
1.Do not be seduced to jump on the recently performing best fund. It may seem like the safe and rational thing to do, but like individual stocks, you want to buy low and sell high, not buy high and pray for more growth.
2.Even good funds may not be able to overcome the force of the overall market. You should be looking for funds that can exceed the broad market without increasing risk. Each fund has certain risk parameters that it is required to follow. Read the prospectus closely to understand what these are.
3.Limit the number of funds that you own. Unless you are trying to simply achieve the same returns as the broad market, diversifying into many mutual funds will not reduce your risk or increase your return by much.
4.Funds that become too popular and too big tend to slip in performance. There are several reasons for this.
Find more valuable mutual fund resources at www.best-mutual-fund.info
One final point to keep in mind is that the type of fund will totally depend on your investment objectives. There are certain funds that are designed for your objectives be they retirement, income, growth, funding the kids college, etc.
Stocks Or Mutual Funds
If you happen to have some money left over at the end of all the bill payments and you have no need for anymore toys, or even if you are beginning a prudent and fiscally responsible gamble on some wealth that incorporates investment opportunities, you may find yourself wondering whether investing in stocks or purchasing mutual funds will offer the best returns. You might also consider this question when considering how to set up a retirement fund.
In order to help make the decision, it is important to understand what stocks and mutual funds are.
Stocks: Most people believe they have a basic understanding of what stocks are, simply because of their exposure to the term in every day usages. Stocks are individual bits of companies that are available to be purchased by the public in open trading on the stock exchange. Stocks are often sold in bundles, and thus to purchase a stock in a specific company often entails some kind of minimum purchase. Stockholders have a vested interest in the company's well-being, as the price of their stocks are directly related to a company's performance. Stocks are divided according to the kind of business they represent, which is known as a sector.
Mutual Funds: Mutual funds are collective investments that pools the money from a lot of investors and puts the money in stocks, bonds, and other investments. Mutual funds are usually managed by a certified professional, as opposed to the individual management of stocks. In essence, mutual funds incorporate many different types of stocks.
The question of whether or not to invest in stocks or mutual funds will primarily come down to the personal expertise and wealth of the individual. Many people will be tempted by the "game" aspect of buying stock, as well as the chance to invest singularly in a company that is well-known or can be easily researched. The fact is, however, that by the time stocks become available on the market they are generally already highly priced, and investing in individual stocks is a highly risky maneuver as your entire process hangs on the well-being of just one company. Even wealthy investors diversify their portfolios by investing in several different types of stock, and this can simply be unaffordable for the average person.
The better bet for the beginning investor is to purchase mutual funds. Mutual funds will pool the costs of many different stocks, lessening the risk of losing your money and raising the chances of gain. Mutual funds may not provide quite the excitement of investing in a lucky stock, but they are good investments for a long-term financial opportunity. In addition, mutual funds are managed by professionals that are well acquainted with the pitfalls and opportunities of the investment sector, which will cut down on both risk and the time it would take to pick individual stocks through research and appointments. Mutual funds will also distribute the risks among several investors, and it is all managed by someone who likely has contacts within the financial world.
For the individual with some extra money, who does not have the time or the expertise to properly "play" the stock market, mutual funds will prove the better option.
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