A mutual fund is another way to invest money. It is suitable for beginners and those who have no time to understand investing. It does not require participation in exchange trading, special knowledge and works on the “buy and forget” principle. The profitability of mutual funds, as a rule, is significantly higher than the bank deposit.
Millennial Investor– This young investor wants to save for retirement. It has a longer time horizon and a higher appetite for risk. Since he doesn’t need income for years, he can invest in actively managed mutual funds to get higher returns.
He can choose actively managed mutual funds, high-growth stocks, and alternative investments such as hedge funds.
Middle Aged Investor – By midlife, saving for retirement is an important goal. This investor seeks not only to increase income in the long term, but also to investments that will create an income stream upon retirement. These include mutual funds invested in stocks with dividend payments and bonds with interest payments.
Pension saver – Mutual funds are a good investment option when accumulating for a long-term financial goal. As retirement approaches, the portfolio becomes more conservative. A set date mutual fund gradually increases bond offerings and reduces stocks as retirement approaches.
How to evaluate mutual funds: criteria’s of choice
When choosing suitable Type of Mutual Fund Schemes for yourself, you should pay attention to the following indicators:
Benchmark: Mutual funds are compared against benchmarks to help investors evaluate how the fund is performing in comparison to its peers. The fund can also be compared to an industry benchmark. Index funds directly copy their benchmarks.
Budget execution reports: Mutual funds issue semi-annual and annual performance reports. You can access these reports on the mutual funds website.
Portfolio turnover: Portfolio turnover is the frequency with which the fund buys and sells securities. The more a fund trades, the higher its trading fees. These fees undermine the overall performance of the portfolio. Turnover is measured as a percentage of the average portfolio value.
The term of the fund. The longer the management company has been on the market, the more reliable the fund is.
The profitability of the fund. In order to find out the effectiveness of the fund, you need to look at its reporting, compare its profit with other mutual funds for 5 years, 3 years, 1 year and the last few months.
Participation costs. Commissions and discounts provided for transactions with assets and the purchase of shares, remuneration of the management company and account maintenance costs can significantly affect profits.
The reliability of the management company.You can find out about the rating of the management company on the websites of rating agencies and thematic resources.
Benefits of mutual funds:
Firstly, your money is in the hands of financial market professionals, and the state at the legislative level exercises control over the activities of management companies.
Secondly, for the purchase of shares, the price of entering the market is low, and from the very beginning a high level of portfolio diversification is provided, that is, the risk is reduced.
Thirdly, participants in mutual funds have tax advantages: they have to pay investment in mutual funds income tax only upon exiting the fund and once, and not based on the results of changes in the value of the portfolio, as is the case with independent management of it.