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Lecture # 27 Mutual Funds
Investing In International Mutual Funds
Investing in international mutual funds has two faces:
First is buying funds from US based companies that buy and manage portfolio in internationally listed stocks/securities. These companies are governed by regulations of SEC (Securities and Exchange Commission) Second is buying mutual funds from international non US companies.
A word of caution before investing even in best international mutual funds - Unlike domestic mutual funds investment, international investments entail additional risk factors such as economic and political in addition to risk of FOREX value (simply put: foreign currency exchange value) fluctuations.
Why Should You Invest In International Opportunities?
The number of funds in international investing is on the rise. We can cite a few reasons for this.
Removal of trade barriers and expanding of economies have sparked off growth in many non-US companies. Some of the major industries of the world are dominated by non US companies. Over 72% of the world stocks are listed out side US. Greater and true diversification and opportunity to capitalize on best overseas companies.
Investing in international mutual funds is gaining popularity for various reasons. Rising political stability merging or opening of borders and currencies are some of the reasons. Vibrant and upcoming economies and non US corporations becoming financially stronger by the day are some of the reasons. In addition you get true diversification, balance and opportunities.
Best guide for selecting the right mutual funds
Selecting best mutual funds mean a lot more than deciding by indices and their past performances. However, you need to remember one thing that there is no quick gratification in investments of any kind. This article tells you regarding:
How can you select a mutual fund for investment? Is it important to pick up companies that are performing above average? Is it advisable to compare mutual funds across category?
When your investment purpose is for saving for retirement, then risk minimization should be your mantra. And one of the best avenues for you to invest now is mutual funds as they have an average of 50 stocks in each portfolio for diversification and cushioning the risks.
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Selecting best mutual funds mean a lot more than deciding by indices and their past performances. However, you need to remember one thing that there is no quick gratification in investments of any kind.
Let us discuss the dos and don'ts of selecting the best mutual funds. These points should serve as guidelines for making decision on whether your pick is among the best in the industry or not.
Dos in Selecting the Best Mutual Fund
1. Draw down your investment objective. There are various schemes suitable for different needs. For example retirement plan, capital growth etc. Also get clear about your time frame for investment and returns. Equity funds are not advisable for short term because of their long term nature. You can consider money market and floating rate funds for short term gains. This equals asking - What kind of mutual fund is right for me? 2. Once you have decided on a plan or a couple of them, collect as much information as possible on them from different sources offering them. Funds' prospectus and advisors may help you in this. 3. Pick out companies consistently performing above average. Mutual funds industry indices are helpful in comparing different funds as well as different plans offered by them. Some of the industry standard fund indices are Nasdaq 100, Russel 2000, S&P fund index and DSI index with the latter rating the Socially Responsible Funds only. Also best mutual funds draw good results despite market volatility. 4. Get a clear picture of fees & associated cost, taxes (for non-tax free funds) for all your short listed funds and how they affect your returns. Best mutual funds have lower cost out go. 5. Best mutual funds maximize returns and minimize risks. A number called as Sharpe Ratio explains whether a fund is risk free based on its expected returns compared against a risk free money market fund. 6. Some funds have the advantage of low minimum initial investments. You can start investing even with $250 a month. This is advisable for building asset bases over a long period with small regular investments.
Best Tips to do an Analysis of Mutual Funds
Before investing in mutual funds a proper analysis is required. While all analyses' efforts are aimed at maximizing returns and minimizing risks, it is the latter that gains importance as the single most fundamental criterion to compare mutual funds. This article makes you aware of:
How can you do a mutual fund analysis? Important is the risk factor analysis? Why is it important to track the record of mutual fund companies?
Investing in mutual funds is not a child's play unless one does a mutual funds' analysis. At least it is not as easy as picking top performers going by indices and investing in them. While all analyses' efforts are aimed at maximizing returns and minimizing risks, it is the
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The U.S. Securities and Exchange Commission (SEC) has some clause about the need for communicating facts by a fund to all its share holders.
What is a Fact Sheet for Buying Mutual Funds
A fact sheet gives you a bounty of information about the fund. It helps you decide on a particular fund and how to tell an ethical mutual fund from a non ethical one. Given below are some important facts that you should know as an investor in Mutual Funds.
How to Pre-Select a Mutual Fund
Before you zero in for investment, make a short list of funds that are broadly doing well. For doing this assessing following points may help:
Try to match your financial profile to a fund's characteristics and risk or reward history. Your profile may not permit you to invest in high paying funds if they have a high risk element. Reading the funds' prospectus in detail will give an insight into their portfolio and investment pattern. It is obvious that high returns are almost always associated with risky investments. Any down turn of fortune can see you loosing your principle haplessly. Find out whether the fund's investment philosophy satisfies yours. If you have an inclination for social causes or looking for a steady build up of principle without much risk, look for funds that are socially responsible and/or investing in government bonds and T-Bills. Assess whether the fund's costs, fees and loads are too much or in line with your estimation.
You may not need a portfolio of more than 8-10 funds from different companies to sufficiently diversify your fund allocation objectives. This helps you average out and to a certain extent stabilize returns (especially when your objective is regular income). Select specific funds in your chosen categories to meet your needs.
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