Here are some benefits of owning a mutual fund:
1) They are professionally managed. That means there are one or two portfolio managers who has many years of investing experience.
2) They are diversified. This means that a mutual fund invests in many companies, some of which you already know or heard of such as Disney or Microsoft.
3) You may receive dividend payments, though this is not guaranteed.
4) Any dividends you do receive can be automatically reinvested.
5) Mutual funds are regulated by the United States Securities and Exchange Commission (SEC). All funds must provide a prospectus, which describes the fund in great detail, to every investor.
6) Mutual funds will send you an annual statement showing your income and capital gains, if any for tax reporting purposes.
7) Your money is always available. Should you decide to sell your shares, your mutual fund will buy your shares at the current net asset value. By law, mutual funds must send you a check within 7 calendar days. Be careful if your mutual funds are in a retirement account. You may pay a 10% penalty if it is in an IRA.
8) Tracking your investments is easy. Most major newspapers have a daily listing of the fund's performance. Plus you'll receive fund statement whenever you make a transaction, as well as semi-annual or annual statements on your progress.
9) There are a variety of objectives. Every mutual fund has a specific investment objective, from aggressive growth to conservative growth to everything in between.
10) There is a potential for growth. Historically, mutual funds have far outperformed more conservative investments. There is some risk, but the returns in mutual funds offer a far better potential for growth than investments that are completely risk free.
Things you should do when choosing a mutual fund:
1) Obtain a prospectus, which is a small booklet that contains lots of information about that particular mutual fund you are looking at.
2) Check if this fund's objective is meeting your investment objective.
3) Check the past performance of this fund. While past performance cannot guarantee future results, it gives a good indicator on how well the fund has been managed.
4) Check its sales charge. Studies has shown that Class A shares or Class B shares has no distinct advantage over the other. Whether you pick Class A or Class B, its totally up to you. Class A shares mean you pay an upfront sales charge. Class B shares mean you don't pay any sales charge when you invest, but if you redeem the shares in the first 5-8 years, you will pay a sales charge on the shares you are selling. This sales charge decreases by 1% every year until it hits zero. Class B shares become Class A shares after 8 years.
6) This is the most important factor when choosing a mutual fund. Check its expense ratio, which is usually shown in the tables near the end of the prospectus. You want to pick funds with a low expense ratio since this will effect the rate of return of your porftolio over the long run.
7) Check its turnover ratio. A fund with a high turnover ratio (anything above 50%) is never good. The turnover ratio means how often a fund sells and buys shares of a stock. If the fund is constantly trading, it incur costs each time it buy and sell shares of a stock. Usually aggressive growth funds or high growth funds has a low turnover ratio and conservative funds and bonds have a high turnover ratio.
1) They are professionally managed. That means there are one or two portfolio managers who has many years of investing experience.
2) They are diversified. This means that a mutual fund invests in many companies, some of which you already know or heard of such as Disney or Microsoft.
3) You may receive dividend payments, though this is not guaranteed.
4) Any dividends you do receive can be automatically reinvested.
5) Mutual funds are regulated by the United States Securities and Exchange Commission (SEC). All funds must provide a prospectus, which describes the fund in great detail, to every investor.
6) Mutual funds will send you an annual statement showing your income and capital gains, if any for tax reporting purposes.
7) Your money is always available. Should you decide to sell your shares, your mutual fund will buy your shares at the current net asset value. By law, mutual funds must send you a check within 7 calendar days. Be careful if your mutual funds are in a retirement account. You may pay a 10% penalty if it is in an IRA.
8) Tracking your investments is easy. Most major newspapers have a daily listing of the fund's performance. Plus you'll receive fund statement whenever you make a transaction, as well as semi-annual or annual statements on your progress.
9) There are a variety of objectives. Every mutual fund has a specific investment objective, from aggressive growth to conservative growth to everything in between.
10) There is a potential for growth. Historically, mutual funds have far outperformed more conservative investments. There is some risk, but the returns in mutual funds offer a far better potential for growth than investments that are completely risk free.
Things you should do when choosing a mutual fund:
1) Obtain a prospectus, which is a small booklet that contains lots of information about that particular mutual fund you are looking at.
2) Check if this fund's objective is meeting your investment objective.
3) Check the past performance of this fund. While past performance cannot guarantee future results, it gives a good indicator on how well the fund has been managed.
4) Check its sales charge. Studies has shown that Class A shares or Class B shares has no distinct advantage over the other. Whether you pick Class A or Class B, its totally up to you. Class A shares mean you pay an upfront sales charge. Class B shares mean you don't pay any sales charge when you invest, but if you redeem the shares in the first 5-8 years, you will pay a sales charge on the shares you are selling. This sales charge decreases by 1% every year until it hits zero. Class B shares become Class A shares after 8 years.
6) This is the most important factor when choosing a mutual fund. Check its expense ratio, which is usually shown in the tables near the end of the prospectus. You want to pick funds with a low expense ratio since this will effect the rate of return of your porftolio over the long run.
7) Check its turnover ratio. A fund with a high turnover ratio (anything above 50%) is never good. The turnover ratio means how often a fund sells and buys shares of a stock. If the fund is constantly trading, it incur costs each time it buy and sell shares of a stock. Usually aggressive growth funds or high growth funds has a low turnover ratio and conservative funds and bonds have a high turnover ratio.
No comments:
Post a Comment