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Mutual Funds for a cautious investor!
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Mutual Funds for a cautious investor!

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Mutual Funds (MF) are a great way to invest.The current scene,however, might not be very easy on the MF industry yet for long term investment these are an ideal option. Before investing any one would ...

Mutual Funds (MF) are a great way to invest.The current scene,however, might not be very easy on the MF industry yet for long term investment these are an ideal option. Before investing any one would want to know how mutual funds work. Now, if you ask this from a finance professional, mostly, you’ll get answers that raise even more doubts because the clarifications are full of financial jargon In simple words, you will be more confused than before.Investors who have little clue about mutual fund will always tell you that they are full of risk and will discourage you from investing. However, having said that, I do feel that before plugging in your money you need to watch out for a few points.

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Mutual Funds for a cautious investor! Presentation Transcript

  • 1. © 2013 Deena Zaidi. All rights reserved. MUTUAL FUNDS FOR A CAUTIOUS INVESTOR (a focus article on Mutual Fund Investment) Why mutual funds? They fit to the style of every investor and its easy to understand how they work Why is the study of mutual funds important? A good knowledge of mutual funds will make you a better investor. However, every investment carries certain risks but a good knowledge can give higher returns and help you exit at the right time.
  • 2. Quick tips to Mutual Fund Investing! Mutual Fund Investing Mutual Funds remain one of the best investment options and are a great way to invest. They play an important role in household finances, most notably in retirement planning. However, like any other investment, mutual fund investment needs a careful study. This slideshow will focus on what types of mutual funds are in the market as per risk and return, how should you select them and what are the factors to consider. © 2013 Deena Zaidi. All rights reserved.
  • 3. WHAT ARE MUTUAL FUNDS? What are Mutual Funds and how do they work? Mutual funds are a collection of stocks or funds managed by a fund manager who has a wide experience in the investment sector. Mutual Funds are professionally managed collective investment vehicle that pools money from many investors to purchase securities. These securities are from different industries, which vary widely, ranging from all sectors. Wrong selection of mutual funds can cause a great damage to the portfolio ,therefore, before plugging in your money you need to watch out for few points. © 2013 Deena Zaidi. All rights reserved.
  • 4. MUTUAL FUND TYPES Mutual funds are divided into three categories primarily:  Open Ended Funds: can be surrendered any time and is the most liquid.  Closed- ended Funds: These are for a fixed duration and cannot be surrendered before due date To chose whether we need open ended fund or closed ended funds is an important decision. Ignorance of what type of fund suits us can lead to our money being locked away for as long as 10 years in case of close ended funds. © 2013 Deena Zaidi. All rights reserved.
  • 5.  Most close ended funds yield lower returns than open ended ones and that is one pointer to watch out for.  Money is illiquid incase of close ended funds.  70% of all of these products use leverage as a way to produce more gains. Using borrowed money to invest may produce big returns, but it could also put the fund under intense pressure.  Open-end products may represent a safer choice than closed-end funds, but the closed-end products might produce a better return IMPORTANT POINTERS © 2013 Deena Zaidi. All rights reserved.
  • 6. © 2013 Deena Zaidi. All rights reserved. Mutual Fund Shopping-Factors to consider Identification of your needs Identifying financial needs is a very important part of financial planning. This depends on your budget, duration, savings and your willingness to invest and the level of risk you are ready to take in that investment Expense Ratio The cost of owning a fund is called expense ratio. This is NOT the entry/exit fee(which does not exist now).It includes the investment advisory fee, the administrative costs, distribution fees, and other operating expenses Consistency of fund performance Selected funds should have a proven consistent performance and should not be just based on the previous year’s returns. Its a good idea to check the funds previously handled by the fund manager. Fund Diversification Since Mutual funds are subject to market risks, diversification of investment money in different kinds of mutual funds can help in lowering risks and maximizing returns.
  • 7. Higher Return Higher Risk Money Market Funds Bond Funds Balanced Funds Conservative Funds Aggressive Growth BALANCING RISK AND RETURN For each of your financial goals, determine your risk-tolerance level, your expected returns, and your investment constraints. Understand where you are currently at in your investment program and determine which key principles of investing will help you reach your financial goals. © 2013 Deena Zaidi. All rights reserved.
  • 8. What is your investment style? © 2013 Deena Zaidi. All rights reserved.  Money market: These are like treasury bills or certificate of Deposit. Very low risk and hence, a very low return. These are short term debt obligations. Personally, I would park my money in a bank fixed deposit rather than a money market instrument ,but then, as I said, it all depends at what you are looking at.  Fixed-Income Funds: These funds are invested in government and corporate debt. It provides steady returns but higher than the money market funds. These are mostly close ended funds and money has a lock in period of more than one year depending on which mutual fund it is. These funds are not entirely risk free but one needs to know where the particular mutual fund is investing the money in. The risk on a certain mutual fund depends on that.
  • 9. © 2013 Deena Zaidi. All rights reserved.  Equity Funds: These are high on risk because they invest in stocks. This is by far the largest category and is further divided on the basis of size (market capitalization) and investment style of companies that these funds are invested in. Market capitalization relates to the size of the companies (micro cap, small cap, mid cap and large cap). Investment style means value, blend or growth. Growth funds invest in stocks of fast-paced companies. Value funds seek to invest in stocks that are cheaply priced. Blend funds are not biased toward either growth or value. The fund manager’s past performance (if any) also plays an important role in choosing which equity fund to invest in. It is always advisable to chose companies that are neither value nor growth stocks that are somewhere in the middle. What is your investment style?
  • 10. © 2013 Deena Zaidi. All rights reserved.  Balanced Funds: These are a mix of both equity funds and fixed income funds. These ensure safety and value of the capital invested. Usually, coming with a 60% equity and 40% debt ,these funds are similar to asset allocation funds. One thing to remember is that the fund manager can always switch the ratios as per the market or when he feels he needs to.  Index Funds: These funds are power packed and move along with the exchange. If you doubt the fund manager’s performance then this fund is for you since it is entirely base on the performance of the market and not what the fund manager chooses for you. What is your investment style?
  • 11. © 2013 Deena Zaidi. All rights reserved.
  • 12. For more information visit www.deenazaidi.com © 2013 Deena Zaidi. All rights reserved.