Simply
put, mutual funds are raised and invested by a group of investors (as opposed
to individual investment) to purchase securities; the term ‘securities’ meaning
any kind of asset that can be traded. Both stocks and bonds come under mutual
funds.
Mutual
Funds are preferred to individual investment because the funds are managed by
adept professionals, who can analyse the market information, collective
investment reduces the overall risks, and minimum amount for investing in
mutual funds is very low.
It
is better to make your own judgements on which funds will be profitable, than
depending on guides and ‘top mutual funds’ lists. Some tips to evaluate and
choose the best Mutual Funds are given below:
- Research on funds, they have different characteristics. Always compare funds that have similar objectives.
- You can’t really judge the performance of anything without a benchmark. Evaluate the fund’s returns in the past, with the benchmark’s returns. Usually, the funds that perform well due to good security choices are more reliable.
- Check the track record of the fund manager, even if the fund’s returns have been excellent during past years. Look for at least three years of experience at the helm of fund management.
- Examine the growth of the fund in the past few weeks.
- Assess the fund’s history for any record of consistent poor performance. Sometimes Mutual Funds rename the funds with low return rates and change their investment objectives.
- Once you have a list of funds you are interested in, read their prospectus carefully. Focus on the fund’s goals, investment strategies and especially on the fee structure.
- Some Mutual Funds demand extra fees in the form of ‘front load’ (to buy them) or a ‘back end load’ (for selling them). Consider these additional charges carefully; you don’t really need to pay further for buying and selling funds.
- While doing your research on Mutual Funds, check on the number of bonds and stocks that each one holds. Less number of holdings will make the return rates very volatile- too high or very low. Look for a minimum of 50 holdings in every fund before investing.
Mutual Funds are considered to be profitable
and generally less risky than buying stocks. Though investment rates can be
low, the right fund can give quite high returns on bigger investments. If you
have extra savings putting the money in mutual funds can be a profitable investment.
Author’s bio: Lucy Daniel is a resident of Dublin in Britain. She is into the field of
website designing. She also writes articles for blogs. Lucy likes to research
on financial topics and has written many articles.