Archive for: ‘December 2014’

How to Evaluate and Choose Mutual Funds

December 18, 2014 Posted by admin

>Many investors today utilize mutual funds as part of their overall investment plan. Whether you must make your own mutual fund selections for your 401(K) or employer sponsored retirement plan, or use a professional investment advisor for other types of investment accounts, mutual funds can be an effective way to own baskets of stocks or bonds, with a small amount of investment dollars.Understanding Mutual FundsTo successfully invest in mutual funds, you should understand what they are and how they work, so let’s start with some basics.A mutual fund is a company that gathers money from many investors, and allocates that money by buying stocks, bonds or other assets. A mutual fund is like a big basket which holds a number of investments like stocks or bonds. When you buy a mutual fund, you actually buy a piece of the basket. In this way, you can own a small percentage of many different assets that you might not otherwise be able to afford on an individual basis. The value of the fund is based on the value of the assets it holds. As the stocks or bonds within the fund increase in value, the fund increases in value. Conversely, as the stocks or bonds within the fund decrease in value, the fund also decreases in value. Mutual funds only trade at the end of the day based on their net asset value (NAV). To determine the NAV at the end of the trading day, the mutual fund company looks at all of the assets that are in the basket, determines their value and divides that number by the total number of outstanding shares in the fund.Types of Mutual FundsMutual funds are divided into two categories: closed-end funds and open-end funds.Closed-end funds have a fixed number of shares issued to the public. If you want to purchase a piece of the fund, you have to purchase an existing share from a shareholder that is selling.Open-end funds have an unlimited number of shares. If you want to purchase a piece of the fund, the fund creates a new share and sells it to you. There are significantly more open-end funds than there are closed-end funds. Closed end funds can trade at values that are above or below their NAV, while open end funds only trade at their end of day NAV.Mutual Fund Research – Do Your HomeworkExpensesAll mutual funds have expenses. Some funds’ expenses are low while other funds’ have very high expenses. These include everything from the advisory fee paid the fund manager to administrative costs like printing and postage.With a little bit of homework, you can determine a fund’s expenses before you invest. This is important because those expenses can have a dramatic effect on your investment returns. The three expenses you should be aware of are loads, redemption fees and operating expenses.Loads are commissions or fees that can be charged either when you buy or sell a mutual fund. A front-end load (usually associated with class “A” shares) can be up to 8.5% of your investment. A back-end load (usually called redemption fees, are associated with class “B” shares) can also be quite high, but reduces over the years, the longer you keep your investment in the fund. Class “C” shares do not have a front or back end load, but have extremely high operating expenses deducted each and every year. These loads are usually used to pay a commission to the agent who sold you the fund. No-load funds, on the other hand, do not charge any commission at the front or back end.Operating expenses are generally stated as an annual percentage called the operating expense ratio. These fees cover the operating and trading costs for the fund, as well as management fees that go to pay the fund manager for his expertise and time.12(b)-1 are fees that cover advertising and distribution expenses for the fund. These fees are charged in addition to a front- or back-end load.When doing your homework, look for no load funds that do not charge 12(b)-1 fees, and have a low operating expense ratio. Studies have shown that load funds with high expense ratios perform no better than comparable no-load funds.TaxesAnother point to consider when investing in mutual funds is taxes. When a fund manager sells a stock or bond within the basket for a gain, IRS regulations provide that this gain be taxed to the shareholders of the fund. This means that a fund with a high “turnover” (a fund that buys and sells a lot within the basket each year) could have a great deal of gains that will be taxable to the shareholders. The tax gains are passed through to the shareholders who own the fund as of a specific date each year. This means that someone buying the fund just before the taxable distribution date, will pay the tax on the gain for the entire year, even though they did not own the fund all year. For more tax efficient funds, look for funds that have a low turnover rate.ProspectusBy law, a mutual fund company must outline all of the above expense information, and a great deal more, in their prospectus. A fund’s prospectus will specify a fund’s objectives and its past performance, information about the fund manager and the fees associated with the fund.Past PerformanceA common mistake for novice investors is to select a mutual based solely on its past performance record. Past performance may not be a food indicator of future performance, given possible changes in the global or domestic economy, the markets, or specific sectors the fund invests in. While past performance is a useful tool and one item to consider, it should not be the sole criteria. In many cases last year’s winners are next year’s underperformers.HistoryA fund that has been in existence five to ten years or more has a much better track record to assess than a relatively new fund that have not necessarily had performance measured during various economic or market periods. The longer the period of history you have to review, the higher the quality of historical performance data.Portfolio HoldingsWhen investing in mutual funds (or any investments), it is important to be diversified (see my blog titled “The Truth About Diversification”). Sometimes, owning a few different mutual funds may give the appearance of being well diversified, but on closer inspection, if the funds you own, each have major holdings in the same stocks, you may not be diversified at all. One test is to check the fund’s ten largest holdings. In the more concentrated funds, the ten largest holdings may comprise a significant percentage of the portfolio; in the less concentrated funds, they may hold a much lower percentage. Always know what specific investments your fund or funds own to remain diversified.Portfolio ManagerMutual funds are managed by a portfolio manager, or in some cases, by a team of portfolio managers. The success of a fund by an individual fund manager may be largely dictated by his performance. That is important to know, because a fund with a good track record historically, may perform differently in the future if the fund manager changes. It is always prudent to review the tenure of the fund manager in concert with past performance.StatisticsThere are several key statistical numbers that provide valuable information about a mutual fund. Fortunately, we do not have to calculate those statistical numbers ourselves as they are readily available.Alpha – measures the performance of a fund on a risk-adjusted basis. Alpha calculates a risk factor relative to a fund, and then compares that risk-adjusted performance to a benchmark (such as the S&P 500). A number is then assigned that reflects how that fund performs, relative to the amount of risk the investment is exposed to. For example, a positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%, or a negative alpha of -1.0 would indicate an underperformance compared to the benchmark of 1%. Beta – measures how a mutual fund performs in relation to the market as a whole. A beta of 1 for example, means that a mutual fund will move up or down in value in tandem with the market. A beta of 2.0 would mean a mutual fund would go up twice as much as the market when it the market increases, but it will also go down twice as much when the market decreases. That means this would be a much more volatile fund. A conservative investor would look for investments with a lower beta, rather than a higher one. Standard Deviation – measures the risk, or volatility of a mutual fund or investment. For example, a mutual fund might have a ten year average annual return of 8%. At first blush, that might look very good. But let’s say that this fund had a standard deviation of 20. This would tell us that although the fund had on average returned 8% over ten years, it did not earn 8% each and every year. Some years may have been up and some may have been down, but the average was 8% overall. The standard deviation number tells us that we should expect that this fund “could” return 20% more or 20% less than 8% in any given year, most, but not all of the time. There are certain times, more rare but possible, that a fund might move two or three standard deviations above or below the average 8% (60% more or 60% less). In a down market, that could be painful. The lower the standard deviation, the less risk or volatility a fund has. In conclusion, doing a little homework on mutual funds can really pay off later on not only in terms of performance, but also in terms of understanding risk and diversification. You will find that all of the information discussed above is easily available on a number of internet sites, including Yahoo, MSN, and Morningstar to name a few.

Tips on Investing in Mutual Funds

December 18, 2014 Posted by admin

Building an investment portfolio has many benefits. Mainly, you will earn money. You could invest for retirement or invest to build a discretionary portfolio. There are several ways to invest. You can invest in stocks, bonds, commodities, etc. If you’re aren’t interested in spending a lot of time researching and investing, mutual funds may be a good alternative for you.

A mutual fund is when many investors pool their money together and that money is invested into many investments such as stocks, bonds, commodities, etc. Instead of having to buy individual investments and having to do the research, you can get many different investments at once for instant diversification. Diversifying among many different investments is important, and it’s done for you if you invest in mutual funds.

They are easier because you don’t need to learn how to do research, spend hours researching many different investments, and spend the time it takes to buy stocks or other securities at the right time. You should be familiar with investing and understand this type of collective investment, but it’s much easier than learning all you need to know about stocks, bonds, commodities, derivatives, foreign currency, and other investments.

There is a lot less you have to do which ultimately saves time. If you invested in 6 to 10 different stocks, you should spend at least a couple hours each week researching your investments. With funds like this, you don’t have to worry about what individual stocks are doing. If you invest in index mutual funds, you can expect to earn about an average of what the stock market is earning without having to worry about doing time-consuming tasks.

There are two main types of mutual funds, no load and load mutual funds. Both types charge a small fee to allow you to invest in the fund. However, a load mutual fund adds extra fees because they are often considered premium funds that can earn you more.

No one can guarantee you will earn more money. You can take a risk that a load fund will earn you more money after the fees, or you can invest in index no load funds and save more money on fees. It is also cheaper to do this than to work with a professional investment advisor.

In order to build a diversified portfolio, you need to have a sizable amount of money to get started. When you invest in a mutual fund, you can often get started with as little as $1,000.

If you want to invest for retirement, you can invest in these stock or bond funds through a 401K or IRA. These will give you retirement tax advantages. With a 401K, you get to invest your money tax-free until retirement. You will pay taxes on all the money that you withdraw after retirement. It works similarly with an IRA, but with a Roth IRA, you can contribute taxed money and don’t have to pay any taxes during retirement, even on the earnings.

Assessing Mutual Funds and Purchasing Them Online

December 16, 2014 Posted by admin

Assessing mutual funds should ideally begin not by looking out for the highest returns, but by first assessing the investor’s current financial situation is relation to his financial goals for the near and distant future. One must take into account their incomes, their savings and their plans for the future as well. For example, do you plan to get married, or have children, or buy a house? These decisions are among the most financially taxing you will ever make, and it is best to be clear about these things before investing in a long term security, such as a mutual fund. Also consider your stomach for risk. There is no point in taking on a risky investment if one is not comfortable doing so. After all, it is important to realize that investments are as prone to depreciation as they are to appreciation.

When shopping around for the right fund, look at what the style of the fund is. That is, is it open-ended or close-ended? Does it invest in high value stock or low value stock? What securities would you like to have your money invested in? Once you know this, you will be able to better select an appropriate mutual fund. Also, before investing, look at the fund’s performance over a five or ten year period rather than just seeing how it performed last year. It does not always keep up their good streaks, and a hasty decision might put your money in danger.

Another angle of assessment to consider is the Net Asset Value, or NAV, of a mutual fund. Investors should keep in mind that these are not the same as share prices in the stock market. They do not denote the cost of your investment, but rather the intrinsic value of the mutual fund without any liabilities. Certain investors do not consider this to be an important metric, but for potential investors it can be quite helpful. The higher the Net Asset Value of a fund, the better the fund manager’s performance at choosing which securities to invest in.

Nowadays, one can contribute to mutual funds online at the click of a mouse. This is highly convenient for investors who are serious, but who also have other commitments to stick to, such as a day job. It also eliminates the troublesome paperwork that comes with most investment transactions as everything is conducted online. With the availability of the digital medium, one can expect it in India to become highly popular, as they already are in other markets.

Equity Mutual Fund Basics

December 14, 2014 Posted by admin

When a group of people pool their money together, they are able to have bigger ambitions to realize than if they were to address their needs all alone. This is exactly how stocks operate. A company invites investors to be ‘partners’ by selling out units or shares of the company. The investors receive stockholder rights like voting, attending stockholder meetings and most importantly, receiving a share of the profits. A mutual fund is a spin-off from this. It involves the investor buying units of a mutual fund at regular intervals. The collective money of the investors is pooled together and the company invests this into stocks. Usually the investments are spread across stock, bonds and other assets of a variety of industries, which makes it safer. This is called a diversified portfolio and this is the reason a mutual fund is a safer bet than directly investing in stock. It can be open or close ended. An open-ended fund can be bought by anyone at anytime. A close-ended fund can only be bought when it is put up for sale and there are a limited number to purchase. These can then be traded on the stock exchange.

An equity mutual fund is also a stock fund because it invests in stocks. Equity comes from the concept of having an equal share in the stock on a pro rata basis. It is therefore only invests in stocks which makes it the best mutual fund when it comes to quick value appreciation. They are subdivided by their market capitalization. This is an indicator of the size of the company as it is the total value of the issued shares of a publicly traded company. It is the multiplication of the price of a share by the outstanding stock. This is an economic indicator of the public opinion on the stock. Companies can be divided into micro cap, small cap, mid cap, large cap and mega cap. So a mid cap fund is valued between Rs 50 billion and Rs 200 billion, etc.

The investment style is another way to think about it. Index funds are those that align with the performance of a market index or even outperform it. A growth fund invests in the stock of companies that are fast growing. Typically these are new companies. Value funds are just what they sound like. They are inexpensive to purchase and yet yield dividends. Sector mutual funds are specialty funds since they focus on buying stock in a sector of industry.

An Education In Personal Finance For Ordinary People

December 9, 2014 Posted by admin

Poor financial management is, unfortunately, something that is all too common. Do you think that you’re not good at managing your money? Learn how to manage them now. This article will help you care for your finances. Read and analyze this article to help you pinpoint and fix your problem areas.

When using a broker, it is very important that you choose someone that you can really trust. They should have stellar references and be truthful with you. It is also important to be sensible, and have the experience to know when something is not quite right.

In order to save money when eating in a foreign country, try the local food. Most likely, the restaurant in the hotel, and the restaurants located in tourist areas will be expensive, so look around and discover where the local people eat. The food in local restaurants will taste better and cost less too.

Times are tough, and it can be a good idea to keep your savings in a number of places. Put some in a pure savings account, more in a checking space, invest some in equities, and then put more into higher-interest arenas and even gold. Using a variety of strategies will help you protect the money you have.

Having less meals from fast food places and other restaurants can save one money to help their personal finances. Making your own meals is cheaper, as well healthier for you.

Take advantage of being married and the spouse having the better credit should apply for loans. You can improve bad credit by regularly paying down credit card debt on time. Keep working on restoring the credit of both spouses so that your financial liabilities can be equally shared.

Every time you get a check, save some money from it immediately. Planning to save whatever is left after the month is over is not a good idea. Knowing from the start that those funds are off limits sets the right tone for budgeting and being mindful of your spending and planning.

If you are new to financial independence, be cautious about using credit cards, especially if you are under the age of 21. Once upon a time, credit cards were freely issued to college students. You have to have a cosigner or be able to prove your income. Research each card’s requirements before you apply.

Some choose to gamble by purchasing lottery tickets when they should be putting that money toward savings. When you invest your money in a savings account, you will be guaranteed a return on your investment. If you buy lottery tickets instead, however, your “investment” is likely to yield no returns at all.

If might take you some more time, but it can save money by using ATMs from your bank instead of paying fees. You are often charged a big fee for using ATMS from other banks.

To avoid a frantic, last minute search for your financial records, it is a good idea to maintain a filing system for these documents. Keep an organized filing system containing your receipts, healthcare statements, insurance documents, and other important papers.

When you track your money, you dramatically increase your chances of avoiding banks charging your for overdrafted accounts or not having enough money when a situation arises. You will feel more positive about your personal financial situation simply by monitoring your income and spending, instead of using the bank’s computers to manage it for you.

Private Equity Funds The visionaries that guide the corporates of the future

December 8, 2014 Posted by admin

Today private equity plays a very vital role in international trade and commerce as their investments are not restricted to one particular country or region. PE funds have successfully incubated and mentored a host of businesses in India. While the first set of businesses to receive PE funding were the software companies, more recently realty and media companies have also sought Private Equity Funds. Some of the largest and most popular Indian software firms began with this funds. PE funds invest funds and buy a certain percentage of stake in a company which they later sell at a higher price and derive their profits. Equity Funds are an elite version of the best mutual funds however unlike mutual funds the that need not necessarily pay a regular dividend.

Private Equity Funds seeks companies that can give them high returns, however, this also means that they assume a higher risk by investing in these companies and while all investments might not hit the jackpot, they must ensure that they do not erode the total value of their capital. Some investments, indeed most investments by these funds will earn them a profit but an exceptional few will earn them a huge multi-million dollar profits and these are the deals that every firm seeks to make.

As with Mutual funds, PE fund appoint a fund manager or managers who are paid a management fee, which is a percentage of the amount in the kitty, and also get a share in the profits.

Such take an active interest in the businesses that they invest in and also bring in global experience and best practices that help firms to scale up their operations and add value in terms of a long term strategy.

The decision to invest in a business is based on a careful assessment of the market potential, growth opportunities in the future, long term sustainability of the business, exit opportunities for the quality of management that runs the business.

TIGER Funds : TIGER is the acronym for The Infrastructure Growth and Economic Reforms Fund which is a PE fund that focuses exclusively on investing in companies and sectors that have been deregulated and do business in India. The fund is one which seeks to leverage India’s position as a growing economy and the scale of the Indian economy to generate greater returns. TIGER funds are popular in developing countries, especially the BRICS nations of Brazil, Russia, India, China and South Africa. A growing population and increasing demand in these countries has seen their economies boom. To cash in on this boom PE funds have begun investing here.

Mutual Fund Investments Improve Your Financial Goal

December 6, 2014 Posted by admin

Investing in mutual funds can be simply described as – the easiest way to become a ‘prince’ or a ‘pauper’. The mutual fund market is very volatile. People invest every day, some on a large-scale and others on a small-scale. It depends on how much return you expect and how much money you are willing to risk get that return. However, mutual funds are very popular among many as they can yield a higher rate of return than the interest rates provided by banks. Of course, how high also depends on the kind of mutual funds you invest in. For example, the top mutual funds in India like SBI, HDFC, etc. are known as large cap funds, and belong to the category known as ‘equity.’ These are capable of generating 20 to 30% interest on an investment. But of course there is a catch, equity investments are the most volatile and risky category of investments. Choosing to invest in them depends on your risk appetite.

The Indian market has progressed over the last 10 years, in terms of growth and size. At first people were reluctant to invest, as they were more used to depositing money in banks. But as inflation went up, people opened up to the idea of investing their money in it and other areas of interest. That, and the IT boom of the early 2000’s, opened up a whole new world to the growing populous of India.

What happened was people started using the internet. They learn about it, the potential of an investment and how they can benefit from it. They then started going on online to do research on the different investment options. They started buying shares and stocks of other companies, they started investing in the mutual funds of the biggest and most profitable companies. It was all available on the internet. Needless to say, it became their major source of knowledge, and guide, for investments. In fact, the credit for the current market size and market growth of other investment opportunities can even be attributed to the internet.

Finally, the future is as, or perhaps more, unpredictable and volatile than the market for investments. With the year on increase in inflation and population, the thought of investing in it may very well supersede the thought of saving money in the bank. After all that is said and done, investing in it is a very lucrative investment opportunity – in spite of the risks involved.

The Importance of Mutual Fund With Respect to Financial Planning

December 6, 2014 Posted by admin

Financial planning is the systematized process of meeting your financial objectives through appropriate investment avenues. Every investor harbours a different aim, in this regard. For some it is wealth creation for wealth’s sake, others aspire to buy a home (or several), whereas others wish to build their assets so that they may leave behind some financial security for their loved ones. However, to fulfil these dreams one must first analyse their current financial situations. Financial planning begins by looking at a person’s income, their savings and assets, their tax records, their expenses and debts, their appetite for taking financial risks and even their age, before laying down a tangible and realistic investment plan suited to these observations. Financial planning is ultimately the move one makes to take charge of their and their family’s long term financial security.

Mutual fund investments are relevant to financial planning as they are the epitome of all those financial products that allow us to achieve our financial goals. The ramifications of mutual fund investing, what they consist of and how they will contribute to our financial well being are pre-determined. Every fund has a different goal, which allows investors to invest only in those that will be advantageous to them. Equity mutual funds strengthen one’s finances in the long run, focusing on growth with short term risk. Thus, when engaged in planning your finances, try and figure out what your needs in the long term will be, taking into account old age, your children’s education, and inflationary prices and so on and so forth. Having calculated your potential requirements, invest in an appropriate equity mutual fund that, at the time of maturity will provide you with enough returns to meet your predicted needs. If they do not, then one can always reinvest the gathered returns.

This is a more convenient move than the painful process of building an equity portfolio in the stock market, one share after another. Mutual funds are highly beneficial in the process of planning your finances as they help you to focus your investments today based on your anticipated need for tomorrow in one swift move, rather than wasting your time with other more elaborate investment tools and duties that can be outsourced. For e.g., mutual fund investors are not required to have a keen knowledge of the market as executive decisions are all made by the fund manager.

The combined convenience of a mutual fund along with the experience of the manager as well as the lucrative nature of the medium itself results in a winning combination for anyone looking to invest with the view of long-term growth.

Personal Finance An Important Financial Figure

December 4, 2014 Posted by admin

Among the chaotic people personal finance keeps an important figure. It is the need to meet ends that leads you to loan provisioning. An entity whose income is less than its expenditure raises capital by borrowing or financing. If you are such a potential borrower, a financial intermediary such as traditional bank, credit union, building society, and even high street lenders can work for you.

You apply for Personal Finance [http://www.finance-personal.net/Personal-finance.html] in a tough spot when caught between sharply slowing growth in a rising inflation. To soothe your grueling situation, personal finance comes in secured as well as unsecured forms. Secured loans are collateral-backed money provisions. With that you are able to get fund depends on the equity value of your asset. For that reason only, amount of the finance varies dramatically. However, there will be no problem at all receiving funds in between £3,000 to £75,000 over a period of 25 years. Whereas, if you are a tenant and unable to manage collateral, unsecured loans can do a great work for you. Fund is released simply after checking your repayment capacity. In due course, lenders do not bother taking much headache evaluating your property. As a result of that you will able to secure fund in no time. You obtain funds up to £25,000 instant for 10 years without much hassle.

Even, rate of interest for personal finance depends upon various factors. These factors are mode of loan option, your employment status, bank statement, etc. so, you do not worry much about costly funding.

Above all, for personal finance, lending tempers flared with the surging numbers of numerous lenders for the same personal finance. You can find these lending options even online. Online is a simple and convenient way of loan obtaining. It saves your time and energy. By comparing different options, you can cull out the best possible one easily.

How to Get Financing to Buy a Home

December 2, 2014 Posted by admin

Most homes are financed by mortgages issued by certified lending institutions that make a profit charging interest on the loan. Depending on your credit rating, the current market interest rate and how long you take to repay your mortgage, your interest rate will fluctuate.

If you’re trying to obtain a mortgage to finance your home, but are continuously being denied by lenders because your income is limited, your down payment is too small or you have a poor credit rating, this article can help. Keep reading for 3 tips you can use to improve your chances of finding financing for your home.

1. Investigate an FHA home loan.

In an effort to create equal opportunity for affordable housing, the Federal Housing Administration (FHA) offers mortgage insurance to qualified buyers. The loan still comes from a private lender, but because it’s insured by the FHA, the credit and down payment requirements are lessened.

With an FHA home loan, you can qualify for a mortgage with a 3% down payment and a less-than-perfect credit rating. You can even negotiate for a better interest rate. However, the FHA has maximum limits on home prices that depend on the house’s region and county. Before you make an offer on a home, look into the FHA’s maximum limits in your area.

2. Investigate veterans’ or employer options.

The U.S. Department of Veterans Affairs offers home loan guarantees to qualified veterans that allow former servicemen to obtain a mortgage with no down payment and no mortgage insurance requirements.

Some large-scale employers offer similar programs to employees or retirees. Before you give up on home ownership, look into your union and company benefits.

3. Tap the resources in your retirement savings.

Most 401K and retirement savings plans allow you to withdraw the funds to use for a down payment on a home. However, you’re required to repay the funds within a certain time period. For example, if you withdraw $10,000 from your 401K to make a down payment on a home, you’ll have 5 years to put that money back into your plan.

If you don’t want to remove funds from a retirement plan, you can still use them as your qualifying savings. Banks and lenders like to see that you have at least 3-6 months of savings in case you lose your job or face financial hardship. You can use your retirement investments toward this qualification amount without having to withdraw them from the retirement plan.