mutual funds investment advice
Mutual Funds Investment Advice
Getting good mutual fund investment advice is not easy, for most times, the people giving it are the ones who are trying to sell you the concept of mutual funds or some particular mutual funds scheme. Yet, when such an investment of hard-earned cash is involved, it is always good to be armed with a mutual funds investment strategy. This article gives proper advice on mutual funds investment along with some sound tips.
- Though mutual funds rarely lose money, it is very possible that they do so. As they are exposed to market risks, any market-wide fluctuations or market collapses can and will affect mutual funds adversely. As mutual funds are neither guaranteed nor insured by the FDIC or other government agencies, any mutual fund's loss is wholly the investor's own to bear.
- Most mutual funds have sometimes hidden and sometimes overt costs associated with their services. When calculating the returns on investments, it is essential to note that these costs bring down the mutual funds investment returns by quite a lot.
- Mutual funds are over hyped in the market because of their past performances, but as these are exposed to market risks and these risks fluctuate according to current economic scenarios, it is highly probable that history may not repeat itself. Though past performance is a good indicator of volatility, it is not always a good indicator of expected returns.
- When investing in mutual funds, do not make the mistake of investing in them without a proper strategy in place. Do not indulge in potentially hazardous mistakes like going for an un-thought-out fund selection. If you choose a fund that does not match your investment horizon or income needs, you are also in for some trouble. Blindly investing in funds that promise high returns is also fatal in the sense that the fund may actually be over-weighting high risk securities or may be leaving some risk undiversified in order to make the promised returns.
- All mutual funds have portfolios that bear various degrees of risks (and thus also returns) and you should choose the one based on your investment objective only and not be blinded by greed.
- Be aware of all fees and expenses and how they are applicable to you. Ironically, even the mutual funds that call themselves 'no-load' funds carry certain fees and expenses, so make sure you ask around about them. Some of the fees that you will have to pay while buying a mutual fund include: Sales Charge on Purchases, Purchase Fee, Deferred Sales Charge, Redemption Fee, Exchange Fee and Account Fee. You may also have to pay Annual Fund Operating Charges, which include Management Fees, Distribution/Service Fees, Total Annual Fund Operating Charges and Other Expenses.
- Know the class of shares that your mutual fund is investing in. The three different classes of mutual fund shares include: Class A Shares, Class B Shares and Class C Shares. Also find out all the various tax structures that you as an investor will fit into if you invest in the mutual fund.
- This thing cannot be stressed less - please do read the mutual fund prospectus in its entirety. You may find on reading that what appeared to be a golden opportunity is not really so at all.
- Gather all possible information on the fund manager and his historical track record in the field. Though this is not necessarily a verification of his life-long character, it should give you an insight on whether the mutual fund is likely to be active or passive, aggressive or dormant, etc.