Lepan Centre

Archive for the ‘Mutual Funds’ Category

The top mutual funds are often found in the biggest and best fund companies or families. Don’t waste your time and effort working backwards in your search for the best or top funds to invest in. Get a handle on the world of mutual funds before you head off in the wrong direction.

There are thousands of stock funds and bond funds to choose from and hundreds of fund companies (families) that offer them. There are also lists published of the top mutual funds each year and of the biggest or best fund companies. You and I both know that terms like top and best are subjective. But “biggest”, in the world of mutual funds, has a more specific meaning and refers to dollar value of assets under management. Is bigger better, and are the biggest funds and fund companies the best?

From year to year the top mutual funds ranked by performance will vary considerably, especially for stock (equity) funds. Simply put, any fund can get lucky in a given year by taking a calculated risk; but that same fund is very unlikely to be a repeat performer the following year. Hence, scouring the top funds list each year and making selections based on past performance is a losing proposition. On top of that, you’ll end up switching funds and companies on an ongoing basis trying to stay on the top of the list. You’re working against yourself, and working backwards.

Something of value you may notice from scanning a top mutual funds list: the top funds tend to come from a select group of the biggest fund families. One reason for this is that these companies may offer in the neighborhood of 100 different funds or more vs. just a handful for the smaller competitors. The 10 biggest fund companies manage more than 50% of the money invested in mutual funds. A small company might get lucky once in a while and make the top funds list, but in the long run the big boys will come out on top. Start your selection process by focusing first on fund companies rather than on individual funds.

Decide whether you prefer to work with and pay for the services of a representative (adviser, planner) or to work directly with a fund company and save on the cost of investing. That will help you narrow the field. Then pick one or two fund companies to invest with. For example, the three biggest in the business are Vanguard, Fidelity, and American Funds. With Vanguard investors can work directly with the company and enjoy the lowest cost of investing in the business. American Funds are offered through representatives or advisers who charge directly and/or indirectly for their services, and Fidelity works both ways.

Once you have opened a mutual fund account with one of the biggest and best fund companies you’re in business. Now you and/or your adviser can search their list of funds offered for the top mutual funds that best fit your needs and financial objectives. Making changes in the future is as simple as a phone call. Having spent years in the business, it is my opinion that the best fund companies got to the top of the “biggest” list by offering a wide variety of quality funds and excellent service over a good number or years. They know that a good reputation is a top priority if they want to stay on top in this competitive business.

You don’t need to own the top mutual funds in each category to be a successful investor. Focus first on doing business with the best fund companies. Then pick funds they offer that have consistently performed well compared to their benchmarks and the competition, and fit your needs and objectives. You should invest in mutual funds for the long haul, not to speculate on last year’s top funds.

The definition of mutual funds is the pooling of investors cash to buy securities. The most common types of securities purchased are stocks, bonds, and cash instruments. Currently, there is over 26 trillion dollars of investors money in many types of funds.

Individual funds are not limited to just stocks, bonds, and cash. Many funds pool money together to invest in real estate, gold, and other investments. Before mutual funds came along, these sectors were really hard and not worth investing for an individual investor.

Funds are separated into two categories, open-end and close-end. Open-end allow investors to be in and out of funds at any time with no fees or sales load. A close-ended has either a fee and or a sales charge for buying and/or a fee or a sales charge for selling.

Even though the definition of an open ended fund allows you to go in and out of the investment with no sales charge, both types of funds still have other ways in which they make money. The most common fee is an expense ratio, which can be found in the fund’s prospectus. Expense ratios can vary widely, so make sure you do your proper homework before investing.

Each mutual fund has a manager, which directs the investments. Typically, the manager of each fund will have a specific purpose for the investments. For example, one fund’s purpose might be outpacing a benchmark index, like the S&P 500, using growth stocks. Another funds purpose might be to provide a steady income during retirement using dividends stocks and bonds. Today, there is a fund for just about every time frame and risk tolerance imaginable.

Mutual funds allow an individual investor an easy way to diversify. Imagine the struggle of investing in the top 500 securities in the U.S. by yourself. Not only will your trading fees by outrageous, but also the paperwork and taxes would be too much to handle for the individual investor. It would be a full time job!

The popularity of mutual funds has risen for good reason. They allow you to get a professional manager for your investments for a very low cost. Another advantage that mutual funds give to investors is the ability to invest in markets that were previously unavailable. For example, without mutual funds international investing would be very complex for an individual investor.

Mutual funds are here to stay. There simplicity has many advantages to the individual investor.

Well, you might ask what the best performing mutual funds are. Don’t. The reason is that there could be no yardstick to measure the probability of success while assessing the future performance of the funds. Trying to look at the past records of the mutual funds to guess their future performance is like looking back to see what is ahead. That is simply impossible.

However, Woody Allen says, “if you haven’t failed, you haven’t tried”. There are companies that assess the mutual funds and give ratings based on a certain criteria. These criteria are retrospective, where the fund’s previous performance over the last five or ten years are noted. Based on that observation, the best performing mutual funds are marked. However, this method hasn’t proven encouragingly effective. In such a case what a diligent and cautious investor like you would do?

Morningstar is the most popular among companies that try to rate funds. True to its name, it assigns stars to all the funds, five for the best performers, and only one star for the poor ones. However, doubts are raised about its decisions, since it judges the funds based on their past records and this system is inherently flawed.

Another company that dabbles in this difficult task is the Lipper Leader Fund Ratings. They do not assess the funds and their worth based on past performance as much as they rely on analytical formulas. They do a factor on the past performance, and use the five criteria of total return, preservation, consistent return, tax efficiency and expense to rate the funds. However, the investors have to register with Lipper to obtain the fund rankings.

Business Week along with other business journals assess the mutual funds ratings on a yearly basis. Business Week publishes the “Mutual Fund Scorecard” in their magazine yearly, but this scorecard is also available online in their website, which is updated every month so that you can also get the latest reviews. This will help you to have an idea about the best performing mutual funds.

There are other magazines that deal with business and investment reviews that publish mutual funds and stock picks either annually or monthly. If you are capable of discerning all these information and filter them properly, you will be able to wisely deal and invest, and your money will not only be safe, but it will also turn productive.

The “rigorous criteria” is used by Schwab’s One Source Select List so that they could publish their opinions about the highest rating funds that they publish quarterly. They draw diagrams that could help you to easily find out the risk level on each fund. They even offer well-drawn tables and figures that will tell you all that you need to know about each fund. However, the slight problem is the fact that they do not really explain the way their experts have been able to arrive at such conclusions on each fund. They write a disclaimer that is uselessly long that precedes the ratings. However, this is generally not counted against their performance and the Schwab name is well known among business and investment companies.

If you would like to invest after knowing the rates of each mutual fund, it is advised that you get your information from different rating sources that use different rating systems. This way, the collective information will help you in making better decisions.

A mutual fund is an investment tool that collects money from investors which the fund manager uses to buy and sell or to invest in securities such as stocks and bonds. Typically, a fund company profits through fund loads. The loads funds charge are sales charges or fees that are imposed to investors when buying fund shares from the investment companies.

The fund loads are collected using either a front-end load or a back-end load. The front-end load is charged to an investor at the point of purchase of the investment securities, while the back-end load is charged to an investor upon the sale of the investment securities. For example, you want to invest $50,000 in a fund which gains a 3% commission on every investment made to their fund.

If a mutual fund operates with a front-end load, the 3% commission is deducted from your initial investment. So, with a front-end load, your total investment is $48,500. Now, let as assume that your investment is sold for $60,000. If a fund operates with a back-end load, the 3% commission is deducted after the sale of the investment security. For that, the return on investment you are going to receive is $58,200. In addition to the commission, investment companies are also collecting 12b-1 fees which are the annual distribution fees.

On the other hand, there are investment companies which offer no-load mutual funds. These no-load funds do not charge fees from an investor. However, this does not mean that you are not really paying for fees. There are no-load funds which still collect 12b-1 fees. The 12b-1 fees in no-load mutual funds tend to be higher than those funds which earn commissions through front-end or back-end load. But still, you can find a no-load fund which does not charge 12b-1 fees. This is called the true no-load mutual fund.

For an investor who wants to put his money in a mutual fund, he must consider the no-load and load funds. Which of these two can give you a better return on investment (ROI)? The answer to this question lies on percentage of annual returns.

Mutual funds can help you to diversify the financial holdings that you have. It is never wise to invest all the eggs in a single basket. They are also a way of diversifying the risk and they can also contain a variety of securities such as stocks, bonds, government securities, long term debt etc.

Mutual funds are excellent investments. You should allocate only a portion of the investments for them. There are many different types as well. For example there are aggressive mutual funds and these are best suited for younger people. Mutual funds that are balanced or will give a stable return are suited for older people and those that want pension income. This is the reason, that you should have specific investment goals when applying your money to these investments.

Your risk appetite will determine the type of mutual funds that you should invest in and before you start the investment, it pays for you to do some homework. They are subject to market risks and none of them can guarantee returns since the marketplace is extremely volatile. There are many websites such as fidelity [dot]com that can provide analytical tools, which helps the investors to choose wisely and it should match their risk desire.

When investing in an old fund, enquire the performance of it. It is also important to know about the fund managers and the number of years that they have been managing to determine their experience in the field. The fund will also show the sectors in which they make their investment. This guarantees the returns for the investor. Also compare the performance of the investment to that of an industry benchmark such as S&P 500 to gauge the performance.

Each one has an operating expense and are deducted from the investment of the investor. The expenses should be limited to 1-2% only. Check for the good funds that have an expense ratio below 1%. Payment can be done through an online broker or a financial advisor.

The NAV or the net asset value of the mutual fund is published for all funds on each single day. This is the value of the investment. For example if you have bought 100 units of a fund that is priced at the NAV of $2 per unit. This means that you would have invested $200 in a particular mutual fund. The next day, if the NAV of the mutual fund falls to $1.90, then the cost of the investment becomes $190. In a matter of 1 day, your investment is down by $10. Conversely, when the NAV become $2.20, then your investment has gained $20 in a single day.

The best way to start out is by investing in index related mutual funds. These funds mimic the index and can give great returns. In many cases, these perform better than the index also securing great returns for the investors. Avoid funds that charge a front load. There are a number of mutual funds that don’t have a front load.

“Gold is a wonderful thing! Whoever possesses it is lord of all he Wants. By means of gold one can even get souls into Paradise.”
- Columbus

Gold is one of the good investment avenues open for many reasons.

Why one should invest in gold?

The uncertainty in world markets, particularly the US economy and the weakening of US Dollar against world currencies coupled with phenomenal rise in Oil prices, cascading price rise and inflationary trends – all these point to the need for strong world currency and that is the yellow metal- “THE GOLD”. The Bullion has its own Standard. Besides, it is said to have sentimental values particularly in the Asian countries. Over time, it has proved to be an excellent preserver of wealth.

Gold has maintained its value in terms of real purchasing power in the very long run in all the countries especially in the US, Britain, France, Germany and Japan. Despite price fluctuations, it has consistently retained its historic purchasing power parity with other commodities and intermediate products.

Gold traded mutual funds are the answer for people who want to invest in the yellow metal without the real difficulties of holding it. For example, to buy gold for investment, one has to spend time to verify its weight, purity (particularly in third world countries) quality & other aspects. After all these, the problem of safe- keeping hovers over one’s head. Now Gold Traded Mutual Funds offer all the benefits of such investment without any of the above physical difficulties. Gold’s liquidity, acceptability and portability are particularly important in times of need. In essence, all these benefits are retained & rendered by Gold Traded Mutual Funds.

How these Gold Traded Mutual Funds operate?

They accept funds from public and buy 100% pure assayed gold. They issue unit certificate to the public for each gram of gold invested by them. For example, if one wants to buy 100 grams of the yellow metal, one has to buy 100 units from the Mutual Fund. The price of each unit depends on the price of the yellow metal ruling on any given day.

This investment can be kept in paper or in a demat account. These units can be surrendered to the fund and bars can be obtained in return (if required).

How the Fund repays in gold bars?

All the gold bought by the Fund is deposited with a custodian- usually a reputed banker- for safe keeping in their safe vaults. Once the fund units are surrendered, the Fund authorizes the banker/ custodian to release them.

So this helps the investor to get back gold or retain the deposit (investor’s choice). Since these units are traded in the market, anybody can sell these units easily in the market at the price prevailing on that day. One need not search for a buyer as in the case of selling physical gold.

Gold Traded Mutual Fund offers all the benefits of investment in the yellow metal without its physical difficulties. The major advantages of these funds are:

o Safety
o Liquidity
o Convertibility to physical gold