Monday, 2 August 2010

Things To Be Considered When You Go For Mutual Funds

Mutual funds are good options to get profit from stock market without knowing more about stock trading. The Last some decades investors around the world turned to mutual funds for secure their future financial needs such as retirement, education of their children etc. etc. But investment in mutual funds also has risk like other investments. Let us learn some important things we should consider before investing in mutual funds.

Mutual funds are not guaranteed or insured by any government agencies, even if there are some controls over there. Your investment in mutual fund may lose even if you bought through a bank or it holds the name of a bank.

Mutual funds have some operating costs and it may reduce your investment up to a certain level. There are so many overhead expenses to be met for mutual fund managers and institutions. So an investor will not get the actual profit. He gets only the profit minus expenses. You can compare the fees and expenses of different mutual funds before investing in mutual funds.

Past performance is not a reliable indicator for the future performance. Even if there is a good turnover in the past there may be a loss in the future due to so many circumstances. But an investor can take decision with the help of past performance.

There are so many types of mutual funds. An investor must know the details of mutual funds that it would meet their financial goals. Some mutual funds are open ended and the investor can enter in fund and exit whenever they need. Some others are not allowed the investor to go out soon. They fix a time period to be in the mutual fund. You can redeem the fund only after a predetermined period.

Mutual funds various types according the investment they are done. It may be in shares, commodities, securities, gold etc. etc. The investor can select the fund according to his tastes and preference.

Mutual funds allow its investor to earn money in three ways.

Dividend Payments. You can opt for dividends and the fund will distribute the profit among the investors in the form of dividends.

Capital Gain distribution. At the end of the year such funds distributes the gain from the increase of their holdings ( the securities they hold)

Increased NAV. The Nest Asset Value of the fund increases or decreases according to the performance of the fund and an investor get the NAV at the time of redemption.

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