Mutual funds are investment schemes that are professionally managed by banks or asset management companies. These companies or banks take deposits from the public and invest their money in bonds, shares and other securities. Investment in mutual funds is a great way to earn good returns in the long run. All mutual funds are registered with SEBI (Securities and Exchange Board of India) which is the regulatory body for securities market in India. There are many companies and banks that offer lucrative mutual funds investment schemes. However, there are some secrets about mutual fund investments that you must know before you invest your hard earned money in it:
• Truth about top performing funds- A common trend of investing or a common investment strategy followed by mutual funds investors is to invest in best performing funds. They tend to pick out the top bunch of funds looking at the past performance records and invest in those funds only. This is not an efficient strategy as the stock market is ever changing and every company suffers ups and downs. You should not invest in any fund solely on the basis of their previous records.
• Fund management charges- The truth about fund management charges is one fact about mutual fund investments that most investors are not aware of. The very low expense ratio of about one percent is one of the most misleading truths. Investors tend to think of it as one percent of the profit they earn when in reality it is one percent of their profits and their total investment capital. This makes up for a large sum of money that has to be paid as fees for managing mutual funds.
• Disguise of actively managed funds- Aggressive investors prefer to invest in actively managed funds based on their performance. Actively managed funds are costlier than index funds, that is, their fund management fees is a lot more as compared to index funds. However, these funds are nothing but index funds in disguise under fancy names. This leads to investors spending way more in fund management fees in comparison to the returns they get.
• ETFs are better- Exchange Traded Funds (ETF) have more liquidity than mutual funds. They can also be sold at real time rates at the stock exchange, that is, they can be traded at currently existing market prices. On the other hand mutual funds can only be bought or sold at closing NAV prices. This makes ETFs a better investment option than mutual fund investments.
These are some of the major secrets about mutual fund investments that most of the investors are unaware of. If you are well informed regarding the truth of these secrets it will prove to beneficial for you while investing in mutual funds.
• Truth about top performing funds- A common trend of investing or a common investment strategy followed by mutual funds investors is to invest in best performing funds. They tend to pick out the top bunch of funds looking at the past performance records and invest in those funds only. This is not an efficient strategy as the stock market is ever changing and every company suffers ups and downs. You should not invest in any fund solely on the basis of their previous records.
• Fund management charges- The truth about fund management charges is one fact about mutual fund investments that most investors are not aware of. The very low expense ratio of about one percent is one of the most misleading truths. Investors tend to think of it as one percent of the profit they earn when in reality it is one percent of their profits and their total investment capital. This makes up for a large sum of money that has to be paid as fees for managing mutual funds.
• Disguise of actively managed funds- Aggressive investors prefer to invest in actively managed funds based on their performance. Actively managed funds are costlier than index funds, that is, their fund management fees is a lot more as compared to index funds. However, these funds are nothing but index funds in disguise under fancy names. This leads to investors spending way more in fund management fees in comparison to the returns they get.
• ETFs are better- Exchange Traded Funds (ETF) have more liquidity than mutual funds. They can also be sold at real time rates at the stock exchange, that is, they can be traded at currently existing market prices. On the other hand mutual funds can only be bought or sold at closing NAV prices. This makes ETFs a better investment option than mutual fund investments.
These are some of the major secrets about mutual fund investments that most of the investors are unaware of. If you are well informed regarding the truth of these secrets it will prove to beneficial for you while investing in mutual funds.
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