A guide to investing in mutual funds
Investors in the country often turn to mutual funds and/or exchange-traded funds (ETFs) for their financial goals and to save for retirement. Although both these funds have similarities, they have their set of differences. Understanding both help in better investments and a diversified portfolio.
Mutual funds are investments made using money that is collected from various investors. These funds are collected for investment in a number of securities including bonds, assets, stocks, and instruments of money markets. Mutual funds are wisely managed and operated by official money managers. They allocate the investment of the funds and attempt to produce a huge capital amount or income for the funds raised by the investors. The portfolio of various mutual funds is constructed and maintained such that it conveniently matches the objectives of the investments. Mutual funds best suit the individuals who wish to invest even a small amount of money.
Best mutual funds give its investors an access to professionally controlled portfolios of bonds, securities, and equities. Every shareholder proportionally gets to participate in the various losses or the profits of the mutual fund. In case you are planning to invest your hard earned savings in mutual funds then make sure to compare the 10 best mutual funds and then make a wise choice.
The below jotted frequently asked questions about mutual funds would help you understand them better and help in making an informed decision.
How do you earn from a mutual fund?
There are three ways of earning from a mutual fund. They are as follows:
- Profit is earned from the interest on bonds and dividends on stocks that are held in the portfolio’s fund. Generally, the fund pays all the profit to the owners of the funds in a distribution.
- By selling securities that have experienced a rise in price leads to profit. Most of the funds pass on the profits further to the investors.
- If the holdings of a mutual fund have an increase in their price and the fund manager doesn’t sell them, then they experience an increase in the price. And you can sell your share in the market for a profit.
What are the advantages of mutual funds?
Some of the advantages of investing in mutual funds include:
- Professional management– There is no requirement of picking and managing investments. Instead, an official manager manages all of it using skillful trading and research.
- Economies of scale– Mutual funds sell and buy a huge amount of securities at one given time, which makes its transaction cost quite low as compared to what you would have to pay for various security transactions.
- Variety– In today’s time, mutual funds are available with various strategies or asset classes. This helps the investors to achieve exposure to bonds, commodities, stocks, real estate, foreign assets, etc. via specialized mutual funds.
- Diversification– By investing in mutual funds instead of having individual investments, the risk is divided across various holdings.
- Simplicity and transparency– Mutual funds are subject to market risks that are fairly straightforward.
What are the disadvantages of mutual funds?
Some of the disadvantages of mutual funds are as follows:
- Active management– Management often becomes a problem when investors to manager ratio is more.
- Liquidity– There are various redemptions of mutual funds that take place only at the end of each trading day, unlike stocks which can be traded throughout the day.
- Dilution– Because of a lot of diversification involved it is quite possible to have poor returns.
- Costs and fees– Creating, running, distributing, and everything related to mutual funds is an expensive affair.
What are the different types of funds?
The different types of funds are as follows:
- Money market funds
- Specialty funds
- International funds
- Equity funds
- Income funds
- Balanced funds
- Bond funds
Which are the best mutual funds to invest in the country?
Some of the best mutual funds to invest in the country are:
- T. Rowe Price Blue Chip Growth Fund
- Fidelity® Blue Chip Growth Fund
- Goldman Sachs Large Cap Gr Insights Fd
- Glenmede Quant US Large Cap Gr Eq Port
- TIAA-CREF Enhanced Lg Cp Gr Idx
- Vanguard PrimeCap Core Fund
- Fidelity® Contrafund® Fund
- T. Rowe Price Instl Large Cap Core Gr Fd
- Vanguard PrimeCap Fund
- Harbor Capital Appreciation Fund
- Fidelity® Large Cap Growth Enh Idx Fd
- PrimeCap Odyssey Growth Fund
- Franklin DynaTech Fund
- Franklin Growth Fund