Six Factors To Consider Before Investing In Your First Mutual Fund

You just graduated from high school or college. You landed a real full-time job. Your first couple paychecks have been cashed. You bought those "I Gotta Have It" items. You started a small emergency savings account. Now its time to start investing some money for other goals.

If I just described you, or you are just ready to get started, it is time to research and invest in your first mutual fund. Once you start, you then need to set up a systematic investment program to make additional contributions on a regular basis. If you do these two things, you will start building a nice investment portfolio.

Why A Mutual Fund?

1. Low Initial Investment: Many funds have a minimum initial investment as low as $100 to $250. This allows nearly anyone to get started and gain exposure to the stock, bond and international markets. There are two ways to begin investing in funds. You can open a Roth or regular IRA account for retirement, a non-qualified brokerage or mutual fund account and if you are really serious... open both.

2. Diversification: One of the greatest benefits of using mutual funds is investment diversification. When you invest in funds, you get a small piece of every stock, bond or international equity that your fund invests in. If you had to do this on your own, it would cost hundreds of thousands or even millions of dollars to participate. You get this diversification in every dollar you invest.

3. Professional Management: Lets face it, investing in the markets can be risky, especially when you are just starting out and your experience is limited. Every mutual fund has a profession management team that has been buying and selling stocks and bonds for many years. When you invest in a mutual fund, you get their services as part of your investment. If you select a great fund with great management, you are sure to have great long-term results.

4. Low Cost: There are many funds out there to choose from, so it is very important to find the best quality at the lowest cost possible. This usually means that you will invest in a "No-Load" mutual fund. No-load means you pay no commissions to purchase the fund and 100% of your money goes immediately into your investment account. You will also want to keep an eye on your mutual funds annual expense ratio which is what the management team charges for their services. These can range anywhere from 0.5% to 1.5% depending on the type of fund that you invest in.

5. Liquidity: Having the ability to get your money quickly if you need it is another great benefit of mutual funds. If you place a trade order to sell (or buy) before 4:00 PM when the markets are open, your trade is guaranteed to be executed at the close of the market that same day. If you place it after 4:01 PM, your trade will be executed at the close of the next trading day. Having this guaranteed liquidity within a maximum of 24 hours is exclusive to mutual funds and adds a great deal of safety to your investment.

6. Return Potential: Probably the greatest benefit to investing in mutual funds is your potential to earn above average investment returns. With bank savings accounts and CD's earning 1% to 3%, getting 6% to 10% annually over time from your fund will have a huge impact on the growth of your investment and the expansion of your wealth. Some mutual funds from the top management companies have even earned higher returns over a 10 and 15 year period. When you find these, hang on to them and enjoy the ride.

Summary: Making your first investments can be tricky, expensive and risky. But if you choose a quality no-load mutual fund with a great management team, you should have a great start to your investment program. If you are unsure of what funds are best, make an appointment with a local "Fee-Only" financial adviser and let them help you get started. Either way, get started now. Your future and financial independence depend on it.

To discover additional investment, financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.

About the Author:

Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program. Keith is also the author of "How To Get Your College Education For Less". Available on Amazon.com - ISBN No: 978-1-4538-2053-7.

You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com/

Things You Need To Know Before You Invest In Mutual Funds

Mutual funds can be an excellent way for you to invest in a wide range of stocks and bonds. However, they're not a good choice for everyone. There are certain things you'll need to know before you investing. Keep reading to learn about some of the most important.

One of the main things you need to know before you invest in mutual funds is what's stated in the prospectus. By reading it, you'll learn about the investment objectives and strategies used by the fund manager.

The fund's objectives may not coincide with yours, so you'll need to know this upfront. The prospectus will also give you information about the investment risks and past performance of the fund.

Most importantly, by reading the prospectus, you will learn about associated fees before you invest. They will include administrative fees, operating fees, management fees, and various others. You will be responsible for paying these fees even if the fund loses money, so it's best to look for those with less fees.

Before you invest in these funds, you will need to know their NAV, or net asset value. The NAV is simply a measure of the fund's total assets, minus liabilities, divided by outstanding shares. The NAV is only calculated at the end of the trading session.

This is the amount of money that you will have to pay per share to join the fund. It is also the amount that you'll be able to sell shares back for. Whenever you sale your shares back however, you will also have to pay fees.

Before you invest, you should know something about the fund manager. This is the person responsible for buying and selling the fund's securities. It may be a good idea to look for a fund managed by someone with over five years of experience.

Most people also take the turnover rate into account before they invest in any of these funds. The turnover rate refers to how often assets are sold. Higher turnover rates may mean higher commission fees. You may also be responsible for paying the capital gains, so you may want to join a fund with a lower turnover rate.

You will probably want to know everything you can about the specific fund, including its current assets. However, all funds are only required to report their holdings two times each year. Before you invest, you should see how often they issue their reports. Many of them do so on a quarterly basis.

It's also important to make the distinction between load and no-load funds before you invest in mutual funds. Some funds require you to pay a fee based on the total number of assets in the fund. If this fee coupled with all of the others are too much to pay, then you should look for a no-load fund.

Mutual funds can be an excellent way for you to have money for your later years. Just make sure that you research thoroughly before you invest in mutual funds.

To get excellent information on how to invest in mutual funds please visit our web site by clicking here.

Mutual Funds - Key Points To Consider Before Investing

Stock Market is a term which evokes a spectrum of emotions in different people. Some strongly feel it is nothing but gambling, some others feel it is a sure fire way to lose money. A few get a high on trading in stocks all day long. Some use it wisely to increase their wealth. The fears associated with the stock market have come down significantly since the early nineties and now a majority of people feel comfortable investing in the stock market. The article is specific for Indian investors though most of the ideas expressed are universal.

Investing in the stock market requires careful study, constant review and quick decisions. Cherry picking a stock and keeping yourselves updated about the company and timing your buying and selling can take up a major part of your time. This is where the Mutual Fund industry can lend you their hand. A Mutual Fund is managed by a Fund Manager and a team of analysts who take their time to study the stock market and invest your money. It saves you from all the hassles of stock market investing and you also have somebody to take care of your money.

The Mutual Fund industry has come a long way since its introduction in India in the early 90s. Mutual Funds provide a variety of options according to your risk profile to get high tax effective returns. Having said that, I would caution readers that investing in mutual funds also needs a bit of effort from your side. Getting into the wrong mutual fund at the wrong time can destroy your wealth. The risks associated with investing in any asset class [Stocks or Gold or commodities or bonds] are applicable to mutual funds also. For the more conservative investor, mutual funds offer exposure to fixed income instruments through fixed maturity plan (FMP)/debt funds wherein your money is invested in debt instruments. FMPs/Debt funds are more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that should be kept in mind while investing in mutual funds.

a. If you are looking at investing money for the short term (1-3 years) and want the best tax efficient return then go for Debt funds/FMPs.

b. If you want exposure to stock markets then remember that stock market returns can be achieved only over the long term as markets usually see- saws with an upward bias over the long term. So you may have to stick around for more than 5 years. Do not check your NAV(Net Asset Value) everyday and feel excited or melancholic due to the erratic movement.

c. There are more than 30 fund houses (AMCs) offering more than 700 schemes. Choose the AMCs that have been around for a long time (5-10 years would be a good metric). Do not diversify too much and stick to good fund houses. The details of fund houses can be found in the website of Association of Mutual Funds of India. You can also get the rating of each mutual fund on this website. Always check to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibility to take a hit in case one or two companies that they had invested in get into trouble.

d. Always remember that past performance is not a guide for future performance. Go for consistent performers.

e. Go for New Fund Offer [NFO] only during a significant downturn as this enables the fund to get into stocks at lower prices. For Debt funds opt for NFOs when interest rates start peaking. Do not get into an NFO because you are swayed by the smart ad in the media. Usually NFOs focus on the flavor of the season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die a natural death. So exercise abundant caution.

f. The best time to start an SIP is when the market starts showing a downward trend and the worst time to panic and stop an SIP is when the stock market goes into deep decline. In fact this is the time when the real investors rub their hands in glee. So you should try and increase your SIP amount when the market is really down and then once the market bounces back you can go back to your regular amount. Fix a base and set a target - e.g., for every 100 point fall in Nifty index increase SIP by Rs. 1000 and reduce exposure similarly as the market bounces back.

g. Do not expect extraordinary returns. On a long term basis mutual funds give an annual return of 12-15%.

h. Do a review once a year and check out from sectors that you feel have peaked out.

i. It is recommended to have an SIP in an index fund/exchange traded fund (ETF). An index fund invests in companies that form the particular index. For example if the index fund is based on the Bombay Stock Exchange (BSE) Sensex, then it invests its funds in the companies that make up the index and the NAV tracks the BSE Sensex. This fund will always have a return that closely mirrors the return of the stock market. This is a very safe way and protects you from individual gyrations in stock price of a company or sector. The stock exchange will promptly replace a company from the index in case it starts underperforming and your fund does the same. So you are always assured of a return very close to the market return.

j. Do not confuse an insurance product which invests in the stock market with a mutual fund. They are two totally different products. Insurance products have high charges and give far lower returns than a mutual fund.

Mutual funds are ideal for people who do not have the time or patience to take the effort needed for successful stock picking. They offer the investor a wide choice of exposure to different asset classes and sectors according to risk profile and if chosen wisely can provide extremely satisfying returns to increase wealth.

The writer works as the Country Head for AGEM India Branch, the foreign branch office of the Euro 32 Million Spanish company AGEM S.A. He is in charge of the Indian operations and primarily engaged in sourcing of products from India. He is also Consultant, International Business Development for QualiMed Systems, a fast upcoming medical equipment start-up. His interest in investment started when his father introduced him to the stock markets in the early nineties in the pre-Harshad Mehta era. He also writes for the investment column "Money Matters" in the website Yentha.com.