Mutual fund: A good alternative to directly investing in equities

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By: skyden.dredge
on 22nd Oct,2011

If you can invest intelligently, equity market has no substitute to it.
Mutual fund: A good alternative to directly investing in equities

If you can invest intelligently, equity market has no substitute to it. In fact, over the long run, returns from investment in equities, outweigh all other forms of investment. However, there are risks too. Many of you do not have the required courage or intelligence or time to directly invest in the equities market. For these people, one excellent option to participate in the equities market is through investing in the mutual funds. In mutual fund investment, the professionally qualified fund managers manage your money so as to fetch you the best returns. You do not have to bother much about the market ups and downs. The fund managers do all these things on behalf of you. Here we list down some important things that you must remember while investing in the mutual funds. 


Get started with mutual fund investing


You can get started with mutual fund investing as this gives you excellent opportunity to earn money. Moreover, returns generated through mutual fund investing are generally more than returns from guaranteed investments such as certificate of deposits. However, before investing in mutual funds, you should have clear idea about your investment goals and the time frame within which you want to reach your goal. This will help you pick the right type funds to reach your goals.  


Buying mutual funds offers diversity


The most distinguishing feature of mutual fund is that it invests in several equities or bonds. In other words, investing in mutual funds offers you excellent diversification benefits. You can also invest your money in several mutual funds such as money market funds, bond funds, stock funds etc. This adds to the diversification benefits. Moreover, depending upon your requirements, you can select your funds.


Past performance does not guarantee future returns


You as an investor, must keep in mind that past good show of a fund does not ensure that it will fetch good return in future too. The fund manager is there to change the holdings of a mutual fund, depending upon the current market situation. After doing comprehensive research, the fund manager changes the composition of a fund, so that the fund offers a good return to the gullible investors. 


Involves some costs


Before investing your money in mutual funds, you must know the costs involved in it. Front load are the fees charged at the time of the purchase of a fund. The amount of front load is at least 5% of the total amount that you in a fund. Back loads are the fees that are charged in case you sell a fund. The Back load fees are generally in the range of 5%. However, not all the mutual funds charge loads. But all the funds entail some expenses. The expense ration average around 1.5% and the expenses are borne by the management of the fund. 


Investing in the mutual funds is an excellent alternative to directly investing in the equities. Here, the fund managers take care of the returns generated from investments. However, investing in the mutual funds has some risks too.


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