Posts Tagged: ‘US’

How to Find the Best Performing Mutual Funds in India

August 6, 2014 Posted by admin

Identifying a mutual fund is just like finding out the best stocks to invest in – you must be very careful with the choice instead of going with the �hot’ fund of the day or week, or ones that have nothing else but a short term past performance to show for.

There are some simple rules you must follow to identify the best performing mutual funds in India. Here are three of them:

1. Look for long term players: Typically in a bull market, there are a lot of new schemes launched by mutual fund companies. Most of these schemes are nothing but an offshoot of existing schemes, and thus have nothing new to offer to investors.

These are however launched with a view to get more assets under management for the mutual fund companies.

For you, as an investor, it pays to look only at schemes that have been operation for a long time, say around 10 years. This will leave you with only those schemes that have seen through a few market cycles, and thus have proven their ability to earn returns for investors.

Simply avoid the schemes that have done well in the short-term, because their returns are exactly that – short-term.

2. Look for low cost funds: Mutual funds don’t come for free. Fund houses charge investors what is known as fund management fee, which is mandated to be a maximum of 2.5% for equity funds (2.25% for debt schemes).

Look for funds that charge a low management fee, because each rupee saved can add a lot to your returns over the long term. Of course, cheapness alone doesn’t guarantee success – but low cost is one of the necessary conditions for long-term success.

3. Look for best-performing managers: Your money is not managed by mutual fund companies, but by the fund managers employed by these companies. And fund managers are people like us, who have their own investment rules and discipline to follow.

It is thus important that you choose fund where the fund manager had delivered good returns over the past 8-10 years. This will help you ensure that the manager has been on the job in both bull markets and bear markets.

Also look whether a fund manager has been with a specific fund for long (10 years) or not. While there’s no data to back the claim for a �long-serving’ fund manager in India, research done by Standard & Poor’s in the US has proved that a fund manager’s tenure with a specific fund is one of the most important reasons for its success. But this factor is often overlooked by investors rushing to buy funds with the highest short-term returns.

Conclusion

Like your must do a careful research to find out the best stocks for your portfolio, you must also do a due diligence when it comes to finding out the best mutual funds for long term investment.

While it is difficult to know how your chosen fund will perform in the future, you will at lese be able to sleep peacefully at night knowing that you have done the hard work to pick the safest and the best fund.

Pros and Cons of Mutual Funds

August 5, 2014 Posted by admin

As a structure, mutual funds(MF) have inherent advantages: Expert research team and fund managers ?�EUR” Unless you devote full time to research, you cannot expect to do justice to your portfolio. In mutual funds, you just leave the research to the specialists and relax while they do their job and deliver returns for you Diversification ?�EUR” A single stock or a single bond inherently has risks. Think of the Satyam or the Enron debacle. But as a market, the risks are far lower. This simple concept, wherein you use the fact that not all stocks go bad at the same time, though individual stocks sometimes could, is called diversification. MFs use this to your advantage, through holding several stocks or bonds at any given time Risk control ?�EUR” Experts in the regulatory bodies, and in the fund houses themselves, have laid down strict rules that funds must follow. This is a scientific way to keep risk low and manageable. You would struggle to do this yourself. There are some special advantages of MFs in the Indian context:
1. Customer friendly regulatory environment: MFs in India are regulated by the Securities and Exchange Board of India (SEBI). Over the years, SEBI has introduced several features to make mutual funds customer friendly ?�EUR” such as safety, low transaction costs, transparency on fund portfolio and strict disclosure norms for the funds. Indeed, in several ways, investing in MFs in India is cheaper and easier than in the West. 2. Tax treatment: MFs enjoy a favourable tax treatment in India, far better than even the US and several Western markets. In India, they are treated as a pure pass-through, i.e. there is no separate taxation of funds. In case of equity and gold, the only tax that happens is at the product level. In case of debt, it is even better. While interest from debt if you invest in a fixed deposit is taxed as income, mutual fund debt is taxed as capital gains, a far more lenient system.
3. Low cost: As a result of the above points, the annual cost of holding MFs in India is very low (hardly 2% in case of equity and less than 1% in case of debt). This is a very small price to pay compared to the returns you can generate, and the other benefits mentioned above.
There are very few cons of a MF. In fact, we struggle to think of any serious contender! But yes, for certain expert and involved investors who are regularly updated on the market, mutual funds may be unnecessary. They may prefer to deal in the equity or debt markets directly.For more knowledge and wisdom on Personal Finance, visit the website of fintotal

Exchange Traded Funds vs. Mutual Funds

June 9, 2014 Posted by admin

Exchange Traded Funds (ETF) are one of the fastest-growing and most powerful investment tools, since their debute in the US Market in 1993. ETFs play an important role in the US investment revolution that began in 1924, when the first Mutual Fund was introduced to the investment marketplace. Like Mutual Funds, ETFs are well-diversified baskets of securities, which provide investors with a broader exposure to particular investment styles across particular industries with just a single investment. However, before investing in ETFs, it is very important to understand how they work and what makes them so attractive and different from Mutual Funds (MFs).

Actively Managed Funds

Each mutual fund hires a manager, who not only makes all the choices regarding the stocks within the investment basket, but also takes care of investors’ needs. When you decide to invest your money in the fund, fund’s manager has to create new shares to meet your purchases, and to sell existing shares to meet your redemptions. Most funds charge you one-time fees such as a front-end load (up to 8.5 percent) and a back-end load (up to 6.0 percent) to enter and exit the fund, as well as ongoing 12b-1 operating fees (up to 1.0 percent). Currently, the average annual expense ratio for traditional funds is 1.67 percent.

Passively Managed Funds

One of the main reasons for the popularity and high competitiveness of an ETF in the investment landscape is its lower fees. Unlike traditional funds, ETFs has no front-end and back-end loads. An ETF is a passively managed, low cost alternative to Mutual Funds. There is a predetermined set of rules that are used by the fund’s sponsor to govern the stock selection. An ETF is traded on a stock exchange. The investor only has to pay a trading commission to the brokerage firm through which the transaction is executed. Nowadays, the increased competition among brokers has significantly lower the cost of trading ETF shares. However, each ETF pays a sponsor an average fee of 0.27 percent to run the fund, which slightly reduces the return on investments, but is still much lower than the average annual fees a Mutual Fund faces.

The Negative Aspects of ETFs

The information above is thoroughly in favor of ETFs. ETFs have many advantages and just a few disadvantages over traditional Mutual Funds. The advantages mainly range from low investment cost to increased trading flexibility and investment transparency. However, being a prospective investor, you should not overlook the whole picture. The fact is that no-load Mutual Funds exist and they charge you only 12b-1 operating fees, ranging between 0.2 and 1.0 percent. This means that it is very likely in some cases your transaction costs to be greater with an ETF than with no-load Mutual Funds bought directly from the fund company. Another drawback that can arise is that ETF share prices are subject to supply and demand shifters. This creates a risky trading environment that is nonexistent with Mutual Funds. As a result, when investing in ETFs, share prices can differ slightly from the market value of the fund’s underlying holdings. Exactly like any other shares of stock traded on the stock exchange, the price a buyer pays is usually higher than the price a seller receives.

Bond Mutual Funds Offer A Safer Way To Invest

May 9, 2014 Posted by admin

Due to the fluctuations in the overall economy, men and women have become more investment conscious as of late. They generally take the time to investigate then make their investment in the most worthwhile vehicles. Bonds are presently a preferred choice over stocks, due to the security of the money committed to them. Bonds are generally issued by governments and corporations whenever they are looking for money. Against every single bond, the provider agrees to pay the investor a set amount each year until maturity and the principal amount at the end of the term. You can buy bonds in two distinct ways: bond mutual funds and individual bonds.

With changes in market conditions, the price of the bond also fluctuates. Thus, besides paying you a set sum every month or year, you will additionally acquire some percentage of the increase in the market value of the bond.

There are two means through which you’ll benefit from your investment in bond mutual funds:

Regular income: You are paid a set amount of money each month or at a consistent interval of time as agreed by you. The dividends from these bonds are greater in comparison with other types of investments.

Reduced risk: The money you invest in bond funds will be invested by the issuer in a number of companies. As a consequence, there is a lot less danger of losing your money as compared to stocks where all of your money is actually invested in the exact same business. This leads to reliability and much better yield, which is exactly what any investor looks for. However, it must be noted that these bonds aren’t totally risk free.

Bond Mutual Funds From Different Organizations

Certain bonds are released by the US government and they are usually considered a lot less risky as they are guaranteed by the government. The money is invested in government projects and associated agencies. A number of these bonds are not even taxable and provide a unique option to invest your money.

Cities and states likewise offer bonds. The majority of investors seek out these types of bonds since they are commonly exempt from state and federal taxes. Even so, the investment in these types of bonds is at a higher risk than in the US government bonds because municipalities have gone bankrupt in past times, subjecting the investors to a huge amount of risk.

Corporate bonds funds are riskier compared to other types of bonds however the returns are definitely pleasing. You can expect to earn plenty of income if you make investments in the right corporation. The risk occurs due to the non-availability of support from the government, and that is generally the case with other kinds of bonds.