Different Types Of Mutual Funds

“If you don't act now while it's fresh in your mind, it will probably join the list of things you were always going to do but never quite got around to. Chances are you'll also miss some opportunities.” -Paul Clitheroe

There are so many choices for investors when it comes to mutual funds. Which is great because investors do not have to settle on investments which almost meet their financial goals and risk levels. They can find a mutual fund that is a customized fit to their investment style. In the northern hemisphere alone, there are over 10,000 mutual funds available that investors can choose between. There are more funds then stocks. Each type of mutual fund has its own level of growth, risk, and rate of return. In addition, each fund has already established investment goals, industries, and investment techniques. There are three basic types of mutual funds – equity funds, fixed income funds, and money market funds.

Money market funds are usually short term investments. Money market funds are similar to Treasury Bills. This is an extremely safe investment and there is almost no risk associated with investment in money markets. This is perfect of the investor who has an aversion to risk. However, remember with little risk come a small rate of return. A good way to balance that is to put a larger sum of money into a money market fund. The rate of return is usually double what a typical savings account would give you.

Income funds offer its investors a regular income usually paid out in the form of monthly dividends.

Income funds offer its investors a regular income usually paid out in the form of monthly dividends. This is why this type of investment is called a fixed income fund. The investment is usually in debt management of the government or large corporations. Most people who invest in income funds are investors who are extremely conservative or people in their retirement years. Income funds have a higher rate of return then money market funds but they do carry more risk with them.

Balance funds offer the investors just the right mix of income, low risk, and appreciation. The goal of this type of fund is to invest in a combination of all types of stocks to achieve a balanced and profitable investment portfolio. Most financial experts suggest that balance funds should be 60% equity and 40% income.

Equity funds are what most people think of when they hear the term mutual fund. This type of investment is long term and the goal is to slowly increase capital over a number of years. As retirement approaches more equity funds allow the investor to draw an income each month from the fund.

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Socially Responsible Mutual Funds

“We have to shift our emphasis from economic efficiency and materialism towards a sustainable quality of life and to healing of our society, of our people and our ecological systems.” -Janet Holmes a Court

Investing can have a dark side. There are plenty of shady business ventures which may not be legally but are definitely not moral. There are people out there who believe that to get ahead in business, investing, and life you have to do unpleasant things.

However, there are plenty of ways to make a profit, and be successful in business without losing who you are and adhering strictly or you ethics. If you are concerned about the ethics behind investment ventures there are many websites which list out and offer researched based no just on corporate success but also on their moral compass.

Believe it or not there are socially responsible mutual funds out there. These type of mutual funds belong to companies which make it a point to be socially, morally, and environmentally responsible their actions and the actions of their employees. Many of these companies also contribute a great deal of money to their community and socially important issues. There are several things you can do, as a socially responsible investor, to make sure the stocks you are investing in belong to a socially responsible corporation.

There are fund managers that have the sole responsibility of seeking out and create good mutual funds which are both profitable and socially responsible. They only let corporations into their mutual funds if they exhibit certain behaviors which adhere to the goals of the fund and the demands of the investors.

For example, if a mutual fund has a goal to be environmentally friendly, it will seek out corporations which follow all the environmental laws, rules, and are active in environment preservation. They would exclude companies which test on animals or support nuclear power.

For example, funds with a strong sensitivity towards issues of environmental concern will specifically pick stocks in companies who go beyond fulfilling environmental requirements, but the fund will most likely invest also in companies whose practices reflect other concerns, such as animal testing or nuclear power.

Shareholder activism is something that is taken very seriously. Not only do these people invest in these corporations but make a point to get personally involved. Investors will try to persuade companies to behave in a socially responsible way through letters, suggestions, policy meetings, proposal, and using voting rights.

The power of shareholder activism lies in the number of being that are invested in making a change. A couple of people are just seen as a nuisance. If you have ten thousand people, real investors, who are pressuring a company to change it's policies – things will get done.

Visit the Global Investment Institute and signup for our free Investing For Beginners E-Course at http://www.Global-Investment-Institute.com

Investment webmasters or publishers, please feel free to use this article provided this reference is included and all links remain active.

Understanding Mutual Funds: Part II

Now that we understand the types of funds that are available (from Understanding Mutual Funds Part I) it's time to look under the hood and understand one of the most integral parts of a fund: the expense ratio. Most people do not understand what expenses are related to the funds they've invested in and how it impacts their investment dollars. The main point to keep in mind is that expenses are rarely made apparent in a statement. A mutual fund is required to give all investors an up-to-date prospectus that describes all related fees. However, it's often difficult to understand the terminology and wording used in a prospectus.

So what is an expense ratio? First off, understand that the expense ratio for each and every publicly traded mutual fund can be found at numerous web sites. Try searching online to identify the expense ratios of any mutual fund you own, or are thinking of owning. They usually are made up of the following: the management fee, 12-b1 fees and load.

The investment advisory fee or management fee is the money used to pay the manager(s) of the mutual fund. On average, this fee is about 0.5% to 1.0% annually of the fund's assets. This can also include the administrative costs of recordkeeping, mailings, maintaining a customer service line, etc. These are all necessary costs, though they vary in size from fund to fund. The next portion of the fee is the 12b-1 distribution fee. This fee ranges from 0.25% of a fund's assets up to 1.0% of the assets. Simply put, this is for marketing, advertising and distribution services related to the fund.

Finally, one of the more prominent expenses: the load. One type of load is called a front-end load or "A" share. These loads are typically a one-time charge of 5% of the investment amount. This type of fee charges all loads up front and allows the investor to leave the fund without penalties. Then there is a deferred load most commonly known as "B" class shares. These funds defer the load in smaller percentages over time charging a surrender penalty should you leave the fund prematurely. Once the surrender period is over, the shares become "A" shares with no further loads being assessed. Finally, there are level load funds, or "C" shares. These charge small front loads, and level loads every year thereafter. Although "C" class shares might look like they aren't so bad to buy initially they can end up being expensive to hold. Finally, there are also "no-load" funds that do not charge a typical sales load. Although generally these can look more appealing these types of funds sometimes will charge higher 12b-1 fees since they may not be actively sold through advisors or other financial professionals. Sometimes the key is the rate of return vs. the expense ratio. If a no-load fund is getting a 7% rate of return with no load and a loaded fund is averaging 12% rate of return it might make sense to invest in the fund with the load.

Some other concepts rather unique to a mutual fund are its turnover rate and tax implications. A fund's turnover rate basically represents the percentage of a fund's holdings that it changes every year (through the fund's sale and acquisition of equities). A managed mutual fund's turnover rate varies on the type of fund it is. For example: a small-cap growth fund will generally have a higher turnover rate than an index fund. Because buying and selling stocks costs money through commissions and spreads, a high turnover rate indicates higher costs for the fund. Also, funds that have large turnover ratios can end up distributing yearly capital gains to their shareholders and thus they have to pay taxes on these gains.

Armed with this knowledge the main thing to remember is that the returns that show for a mutual fund already take into account these expenses and show the "net return" for the fund. Knowing how much a fund charges in expenses will then allow you to make a true comparison of investments when picking between similar types.

Please note: this article does not take the place of a prospectus or investment advice from a licensed professional. Always research any particular investment before buying.

Rick Ramos has sold securities as a registered representative and is a licensed insurance producer for the State of Illinois. His articles regarding estate planning, retirement and investing have been featured on numerous websites. If you have other questions or would like more information you can e-mail him at: rick@insuranceblueprint.com.

Facts about Mutual Funds

Ok......., today we are going to talk about something most readers are concerned about. If I have extra money, where should I put my money? Mutual fund or unit trusts is always a popular option among beginners.

What is actually mutual fund? American uses mutual fund but a lot of Asian countries such as Malaysia and Singapore, our people here call it unit trusts.

Actually the concept is simple, a co-operation or company with a few what they claim themselves as " expert investors" set up a fund where you put your hard earned money, they promise they would invest these monies for you in stock market, bond , property or even money market. They are supposed to help you to earn extra money and the returns they get are management fees and transaction fees. A lot of laymen like you and me are very interested to invest but we just do not have the time to follow the stock market and we hardly have any idea which stock to buy since that your country may have one thousand and one hundred stocks available. So these people provide you a better choice, they would help you to monitor the market and they claim that they can do better than the average stocks returns.

These people whom they call themselves as fund managers are usually equipped with a degree in business or commerce. They have vast experience in investment. You may wandering, since that they know how to invest, why they are willing to share this trick with other layman investors like you and me? The answer is simple, by 'helping' you to invest, their income in guaranteed regardless of the market performance.

Why this thing is happening? Because we are paying them for the services. If you read through the prospectus carefully, they would state that no matter they are making money for you or not, every time you are buying the units, you have to pay up to 5-6.5% more the unit actual net asset value ( NAV). ( Malaysian Unit trusts figures). For an example, if there are 1000 units in a fund and these units worth RM1000, NAV of one unit is RM1, but they are selling to you at RM1.05 ( 5% higher). Besides making money like this,at the end of every financial year, they charge you managers' fees which can be up to 3% of the total NAV of units available. So are you surprised with the news that 80% of Malaysian who used their EPF money (compulsory retirement plan in Malaysia for workers, similar to 401k plan in US) to invest in unit trusts actually lost their money.

Now, you understand why all the bankers are making money every year regardless of the market. Can you imagine that you have entrusted your money to your 'friends' and hoping that they help you to get some returns and at the end of the day, they lose half of your money and the worst part, they are asking you to pay them some more because you are using their ' intelligence' to ' lose' your money in stock market/ bonds!

However, if you are lazy people and refuse to learn new thing, mutual fund is the ideal place for you to put money in long run. But I am always cautious about mutual fund, maybe there are a lot fund managers making money for you ( and making even more money for themselves) , there are also huge numbers of fund managers who do not make money for you! ( but they are still making money for themselves!)

When I stared my work about 4 years ago, I invested RM1000 after saving for 3 months( about US280) in one of the newly launched unit trust in Malaysia. After 4 years of waiting, they never announced any distribution ( dividend ) to me and the worst part is my investment is worth RM950 only nowa day ( plus 3-3.5% of inflation per year in Malaysia, I actually lost about 15% in that unit trusts in 4 years!). Recently I received their financial report about the fund, actually, they lost RM 32 million in previous year but we as unit trust holders still have to pay RM 3.2 million to the fund managers for their service!

If you are approached by an agent who promises one thousand and one things and tell you how good their mutual fund is, always remember my advice, read properly their prospectus and if possible, invest yourself rather than giving your money to them for them to help you to invest!

There are usually 3 types of mutual funds available in the market, high, intermediate ( medium) and low risk. A high risk mutual fund is a fund where the fund managers would put your money( remember 'your money' not their money')in investment vehicles such as stock market, hoping for higher returns. A medium risk mutual fund is a fund with mixed portfolios ( a combination of stocks and bonds) and usually they pay you certain income every year. A low risk mutual fund is a fund where all your money would be put in investment vehicles that pay you fixed income such as government bonds). You must remember that the agent always tell your that you need to ascertain your risk tolerance before deciding which type of mutual fund to buy because all these funds carry certain risk to your money. ( I always think that I am the one who takes out my money to invest and I have to carry some risks, the fund managers and the company never spend a cent to invest and they have "no risk", don't you think it is funny?)

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