Share Market

These days between work, family, and friends, most of us do not have the time to make or monitor personal investment decisions on a regular basis. Mutual funds have competent professionals who do all this for you. This is the reason why, the world over, they have become the most accepted means of investing.

Mutual funds curtail risk by creating a diversified portfolio while providing the essential liquidity. Additionally, you benefit from the expediency of not having to bother with too much paperwork or repeat transactions. It is our belief that investors vary in their investment needs based on their individual financial goals.

There are six key things someone needs to evaluate when considering a mutual fund:

1. Performance

2. Fees

3. Turnover

4. Manager Tenure

5. Key Holdings

Performance

• Track record: how did the fund perform over the last Year, 3yrs and 5yrs.

• How does the fund rank & compare to others in its sector.

• How did the fund do when compared to what is known as “the benchmark.”

Fees

How much you have to shell out in terms of the fees involved in a particular fund.

Turnover

This deals with the amount of trades the fund manager is doing per year. 100% turnover means during the year he or she changed the entire portfolio to a new set of stocks. Some funds have very high turnover, 200% is not completely uncommon. It means every time the fund manager makes trades, you are incurring the TAXES. Many people hold funds with high turnover in their “non IRA” accounts which makes no sense, because you are then paying taxes unnecessarily. Those funds with high turnover should be in IRA accounts to reduce taxation. Taxes eat away returns and failure to not address this only means less money in your pocket year after year.

Manager Tenure

It may happen that everything looks good: performance is strong, fees are low, low taxes, looks great. Investors put money into the fund and they get slaughtered. How can that happen? One of the more common ways is that the investor didn’t know to check to see who the fund manager is. One very popular fund had a great track record for 10+ years. The fund manager left, a new guy came in and the next year was a disaster. Knowing your Fund Manager is a key commandment in the world of picking mutual funds.

Key Holdings

People invest in mutual funds to get diversification, but often, funds have significant “overlap” in their holdings. For true diversification, you should at least check to see what the top 10 holdings are. Imagine investing in 5 mutual funds thinking you are diversified, only to later find out that all 5 funds have very similar holdings. And thinking you were diversified, the market tanks and all of your holdings drop. Checking holdings is a very important factor in selecting the portfolio of funds.