Important facts to remember before investing in Mutual funds
Today, it is not just about making money, it’s about making quick money. Mutual funds are one of those legal, safe ways to make quick money. There is however a chance, you could lose money if you don’t fully understand mutual funds.
Get to know about:
• The sales charge fee and expenses of your mutual fund investment
• Taxes to pay when your mutual fund gives returns
• The age, size and risk level of the your mutual fund
• Updated mutual fund regulations
Comparatively safer mutual fund investments:
• Money Market Funds- where your principle amount will be safe but returns would not be very high.
• Bond/ Income funds- considered safe because of its investment in Government debt or corporate debt which gives steady but modest returns.
• Balanced funds- A balanced mutual fund where investments are done on a mix of equities and fixed income funds. These funds rest on 60% equity and 40% fixed income for its returns.
Comparatively risky mutual fund investments:
• Equity funds- This involves variety of equity investments ranging from small, midsized to large companies. The risk level depends on the growth and value of the company in which the investment is made.
• Global/International funds- Global funds are investments made anywhere in the world, including one’s home country, whereas International funds are investments that are done outside one’s country. Though the risk level cannot be defined as high or low, the challenge here is due to fact that the returns highly depend on political, economical and social factors of the country where investment is being made.
• Specialty funds – These are investments based on a certain criteria. It can be classified more broadly as Sector funds, Regional funds and Socially responsible/ Ethical funds. Specialty funds involve a certain amount of risk, especially due to the complexity of the criteria.
• Index funds – Mostly this kind of investment is made on large companies. Though the returns are highly competitive and the returns are risky, index funds benefit the investors due to its low fees.
Since mutual funds make a significant investment, it is highly recommended to think and re-think about the benefits and risks involved before making a planned venture.
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