Mutual Funds guide center

One-Minute Guide | Capital Gains

2011-01-07T04:36:00.000-08:00

Who am I?

I am the gains or the profit made from the sale of any capital asset that you have owned. In other words, I am the difference you earn by selling this asset from the price you paid to buy it. A capital asset can be either an immovable (such as property) or movable (investments in shares, mutual funds and so on) asset or even jewellery. Capital gains tax is the tax imposed on this gain.

Long- and short-term capital gains

As I said above, I attract a tax. Income-tax authorities will tax according to how large I am (quantum of capital gain) and on when I come to you. In simple words, if you’ve held the asset for less than 36 months before you sold and earned me, such gains are classified as long-term capital gains (LTCG). Assets such as property attract LTCG tax after three years. For assets such as equity shares, debentures and mutual funds, the threshold period is one year. If you sell any of these after holding them for a year, then LTCG tax kicks in, else short-term capital gains (STCG) tax gets imposed.

How to compute me

I am pretty simple to calculate if you wish to calculate my shorter version (STCG). In this case, I am the difference between the selling price (the price at which you sold an asset) and the cost price (the price at which you bought the asset). For my longer version (LTCG), there is a process. Because the cost of an item goes up over the years, purely on account of inflation, it’s unfair that you pay the tax on the entire difference of sale price and cost price. Therefore, through a system called indexation, the government of India allows you to inflate the cost of an asset to adjust for inflation. The government of India maintains—and updates once a year—the cost inflation index that gives you an indication of what an asset should be priced at today’s value. This index should then be applied to the cost price of your asset to ascertain the approximate price you would have paid had you bought that asset today.

How am I taxed

LTCG arising from the sale of equity shares and mutual funds is not taxed. For debt mutual funds, STCG is taxed at your income tax rates, while LTCG is taxed at 10% without indexation benefits and 20% with indexation. The threshold of one year is meant only for equity shares, debentures and mutual funds. For other assets such as property and physical gold, the threshold is three years. LTCG in cases of property and gold is 30%.

—Harshada Karnik
source: www.livemint.com

Fidelity launches Guide to Saving for Children

2011-01-07T04:34:00.000-08:00

Jan 06, 2011 - The aim of the guide is to help parents make informed decisoons when making monetary provisions for their Child;s dream

Dr Indu Shahani, Sheriff of Mumbai has unveiled Fidelity's International Guide to Saving for Children.

The aim of the guide is to help parents make informed decisions when making monetary provisions for their Child's dream

Fidelity's Guide for Children is presented in a very simple and easy to understand manner with the help of humorous illustration.

Ashu Suyash, Managing Director and Country Head, Fidelity International-India, commented "Everyone puts aside money for meeting needs, but largely, the approach is without understanding financial planning and how to maximize returns.We believe that this guide will help investors plan better for these important milestones and empower them to make wise financial woes."

As per the Reserve Bank of India (RBI), Indian households invested nearly 50 per cent of their savings in bank fixed deposits during the last nine or ten years while only a negligible or less than 4 per cent of the household savings were invested in mutual funds. This could indicate that despite the numerous other options available in the financial markets, Indian households continue to invest in bank fixed deposits due to lack of awareness.

Parents are still trying to achieve some of their financial goals like making provisions for their child’s marriage or education by investing in bank fixed deposits. A point of note is that during this period equity mutual funds have delivered more than bank deposits.1 In such a situation, the need to promote financial literacy among parents becomes relevant and important.

Parents will find it interesting to read it as it answers some of the basic questions that could be playing on their minds – such as - when to start investing for children or which asset classes to consider. It highlights the impact of inflation on investments and the costs parents could incur on their child’s education or marriage. It also helps parents realize the need for prioritizing financial goals; a step that every parent with limited financial means needs to take.

Speaking on the occasion, Dr. Shahani, said: “Financially literate or well informed parents can significantly improve the quality of life of their children. Indian parents consider saving for their child’s education and marriage as important duties. Parents must therefore understand the financial implications of fulfilling these duties. I have always sought advice when saving for my own children and Fidelity’s guide will certainly help parents like me, who always want the best for their own children.”

source: www.indiainfoline.com

Why You Should Not Own Mutual Funds

2011-01-07T04:31:00.000-08:00

By Lance Wallach

Taxes take a large bite out of taxable mutual funds. Recent tax-break laws will end in 2010 and it would be smart for mutual fund investors to keep an eye on one of the main drags on performance: taxes.

One key reason why mutual funds paid out such hefty taxable distributions in recent years is because they can no longer carry forward the steep losses incurred during the 2000-2002 bear market, which had been used to offset gains in recent years.

The estimated taxes paid by taxable mutual fund (MF) investors increased 42 percent from those paid in 2006. Buy-and-hold taxable MF holders surrendered a record-setting $33.8 billion in taxes to the government, surpassing 2000�s record amount of $31.3 billion!

Over the past 20 years, the average investor in a taxable stock fund gave up the equivalent of between 17 percent and 44 percent of their returns to taxes. In 2006, the tax bite amounted to a hefty 1.3 percent of assets, which surpasses the average stock fund expense ratio of 1.2 percent.

Mutual funds probably have no place in high-net-worth client portfolios. There are many strong reasons in favor of this position but most immediately � you have probably noticed that every year you receive mutual funds statements with end-of-year form 1099s in the mailbox and discover that a sizeable amount of your hard-earned cash is going to Uncle Sam.

If you were to subtract 50 percent (93 million plus) of mutual fund holders who hold stock fund assets in tax-free accounts (such as 401(k) plans and IRAs), and a small number in institutional and trust funds that make a few investors tax-exempt, this would leave around 48 percent of the nation�s mutual fund investors in taxable funds.

The SEC says the average mutual fund investor in this taxable group loses 2.5 percent of annual returns to taxes each year, while other research puts it at 3 percent. Throughout your lifetime you can see that capital gains taxes will reduce investable income substantially when you retire.

You know the figures. Sure, during the 1980�s and 1990�s, people made money by selectively investing in mutual funds. Even today, it still can be done; however, more than 90 percent of mutual funds have underperformed the stock market as a whole for the past five years. You can get better odds at the horse track.

It works like this: Mutual funds with higher trading costs and built-in high tax limitations create a post-tax return that potentially delivers fewer returns than a similar separate account.

Mutual funds kill their potential for becoming performance superstars by their high volume of trading and killer fee structure. Too much trading causes increased taxes, while high fees reduce performance return on investment (ROI) � period.

If you own your stocks, you are in control. With mutual funds there is: no control over which securities fund managers buy and sell; no purchases of one particular type pf stock to balance out a portfolio; and no opt-out of any particular asset class or company.

On the other hand, if you put yourself in a separate account, you are the boss. Having a separate account means you are in charge. You set the strategy and decide what stocks or bonds make up the portfolio. You also have access to top money managers and can even change a manager if you wish.

The mix-and-match of separately managed accounts (SMAs) makes them attractive to the new breed of investor who wants more control and input into their portfolio. Don�t you want more control after the Madoff escapade and the Wall Street blowup?

With mutual funds, you should be advised early that you do not own the stocks in the portfolio, but merely have shares of stocks along with a large pool of people. So what do you give up when investing in mutual funds? Control.

The individual in control of mutual funds is the fund manager. Too often, this manager is tasked with dozens or even hundreds of stocks residing in one fund. This is exactly the situation in many of the 8,000 or more funds out there on the market- span, or lack of control.

In addition, you are tied to the whims of fund managers, who are often known to depend on �style drift� (buying securities that have no relationship to fund objectives), excessive trading (to pump up a fund�s value as a means of boosting commissions), and other nefarious actions � first uncovered by the Attorney General of New York State in 1993 and reoccurring ever since.

The mutual fund companies are good at cloaking information and spinning their marketing pitches to prevent investors from figuring out exactly what they are paying to own a mutual fund.

Space limits us to expand on all the fees you pay for the privilege of owning mutual funds, but management fees, distribution or service fees (12b-1), expense ratios, trading costs, commissions, purchase fees, exchange fees, load charges (load funds), account feed, custodial expenses, and so on, are a part of the mix that the mutual fund companies utilize to nickel and dime you to death without most of them ever knowing the billing score.

The SEC wants every investor to be fully equipped to make informed decisions before they hand over their hard-earned cash. The SEC requires all corporations to disclosure any and all information impacting their financial positions so investors can make prudent decisions. Transparency is most important due to the recurring events of the last 18 months.

Mutual fund companies provide notoriously slow reporting. It�s most difficult to find out about all the real nuts and bolts (specific equities, bonds, or cash holdings) of a mutual fund. A mutual fund gives you data twice annually � sometimes quarterly � so the data is out-of-date long before you receive it. Most investors do not read their prospectus reports and fund companies know this fact. Even with the introduction of the Internet, which has sped up the tracking for securities immensely, the major fund companies have been painfully slow to keep investors current as to what stocks the investors hold, and if and when those stocks are being traded.

Nowhere is the lack of transparency more apparent among fund companies than in costs and fees. Most investors are aware of management fees and commissions, but other fund fees like the 12b-1 and trading fees are sublimated. Other fees are hidden and, therefore, keep investors completely in the dark as to what they are paying.

With mutual funds, companies are slow on reporting results; the investor seldom knows in real time what socks are in his account and companies are known to hype performance results.

Unless Congress steps up and puts mutual funds on a level playing field with other investment strategies, taxable mutual fund investors will have to fend for themselves.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc(at)gmail.com or visit www.taxaudit419.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
source: www.fastpitchnetworking.com

Do not keep too many funds in your mutual fund portfolio

2011-01-07T04:28:00.000-08:00

What your portfolio needs is a solid actively managed large-cap-oriented fund. You can consider HDFC Top 200 Gr or DSP Blackrock Top 100 fund for this purpose.

I am 34 years old, married and have a two-year-old son. My wife does not earn. I work in merchant navy and my yearly income is Rs.10 lakh. My mutual fund portfolio includes 21 funds from different categories and total investment adds up to Rs.10 lakh. I have one systematic investment plan (SIP) in ICICI Prudential Dynamic fund of Rs.5,000 per month started in July 2009. I also have a systematic transfer plan of Rs.5,000 per month (from HDFC CM Treasury Advantage Plan Retail to HDFC Index Fund-Sensex Plus) started in February 2010. Please advise me about my portfolio. Also suggest another fund for SIP of Rs.5,000 per month.

-Vinayak Warang

Twenty-one schemes are a lot of schemes to have in a portfolio. They make the job of tracking and keeping up with changes very difficult. Please consider reducing the number of schemes in your portfolio to less than 10. You can use the Mint 50 as a guide to figure out which schemes to keep and which to redeem. Regarding your SIP portfolio, you have an investment in a multi-cap fund (ICICI Pru Dynamic) that also invests in debt instruments, and an investment in a passively managed index fund. What your portfolio needs is a solid actively managed large-cap-oriented fund. You can consider HDFC Top 200 Gr or DSP Blackrock Top 100 fund for this purpose.

I am 29 years old with a net salary of Rs.40,000 per month. I plan to go for higher studies after two years. What mutual fund investments, and which funds, would you suggest for me? I can spare Rs.7,000 per month and I need maximum returns as you know studying abroad is quite expensive.

-Santosh P.

You need the money for your expenses in two years. That is too short a time frame to achieve a reasonably reliable return from the equity market. Even if you invest 100% in aggressive equity funds, there can be no reasonable guarantee of even protecting the invested capital. So, how you want to invest your regular savings depends on how much risk you can take. You are planning to invest Rs.1.68 lakh. Consider for a second how you would feel when you check your portfolio after two years, it is worth only Rs.1.50 lakh or lesser. If that possibility scares you or makes you uncomfortable, you should stay with relatively safe instruments such as monthly income plan or short-term income funds (Reliance MIP or Templeton India ST Income fund). On the other hand, if you think you can stomach the risk, you can go for an aggressive portfolio with schemes such as Templeton India Growth and DSP Blackrock Small and Midcap funds.
source: www.indiainfoline.com

Money Fund Assets Rise to $2.802T in Latest Week

2010-11-11T19:25:00.000-08:00

Total money market mutual fund assets increased $2.18 billion to $2.802 trillion for the week, the Investment Company Institute said Thursday.

Assets of the nation's retail money market mutual funds fell $3.74 billion to $937.52 billion. Assets of taxable money market funds in the retail category decreased $3.36 billion to $735.85 billion for the week ended Wednesday, the Washington-based mutual fund trade group said. Retail tax-exempt fund assets fell $370 million to $201.67 billion.

Assets of institutional money market funds increased $5.91 billion to $1.865 trillion for the same period. Among institutional funds, taxable money market fund assets rose by $7.06 billion to $1.742 trillion; assets of institutional tax-exempt funds fell $1.14 billion to $122.89 billion.

The seven-day average yield on taxable money market mutual funds in the week ended Tuesday was unchanged from the previous week at 0.03 percent, said Money Fund Report, a service of iMoneyNet Inc. in Westboro, Mass. The 30-day average yield remained flat at 0.03 percent, according to Money Fund Report.

The seven-day compounded yield also remained at 0.03 percent, while the 30-day compounded yield stayed at 0.03 percent, Money Fund Report said. The average maturity of the portfolios held by money funds rose to 48 days from 47 days.

The online service Bankrate.com said its survey of 100 leading commercial banks, savings and loan associations and savings banks in the nation's 10 largest markets showed the annual percentage yield available on money market accounts was again unchanged from the previous week at 0.19 percent.

The North Palm Beach, Fla.-based unit of Bankrate Inc. said the annual percentage yield available on interest-bearing checking accounts was flat at 0.10 percent.

Bankrate.com said the annual percentage yield on six-month certificates of deposit fell to 0.31 percent from 0.32 percent the previous week. Yields on one-year CDs were unchanged from last week at 0.52 percent; slipped to 0.71 percent from 0.73 percent on 2 1/2 year CDs; and declined to 1.53 percent from 1.55 percent on five-year CDs.
source: abcnews.go.com

Mutual-fund performance data can be misleading

2010-11-11T19:22:00.000-08:00

By Humberto Cruz, Tribune Media Services

If you're looking for a mutual fund that invests in stocks, would you want a fund that calls itself "relatively conservative" and, according to the prospectus, attempts to prevent losses as well as achieve gains? This fund has posted solid long-term returns, losing money in only two of 23 full calendar years since inception.

Or would you prefer a fund the prospectus says "may establish relatively large positions" in securities it finds attractive? (That means it may buy a lot of them, which may increase risk.)

For the past 10 years, this fund has beaten the Standard and Poor's 500 stock index by about 9 percentage points a year on average and the Lipper Mixed-Asset Target Allocation Growth Funds index by about 4.8 percentage points a year. But the fund lost 41 percent during the market meltdown from Oct. 9, 2007 to March 9, 2009.

OK. I asked trick questions, because I'm talking about the same fund: T. Rowe Price Capital Appreciation (PRWCX).

I am in no way picking on the fund or T. Rowe Price, which is a reputable firm. I would include its Capital Appreciation Fund on any short list of moderate-allocation equity funds worth considering. I'm merely using it as an example of the inherent risk of investing in stocks and of making decisions based on partial information.

Specifically, I want to discuss how to make better sense of a fund's performance numbers. Past performance, as regulators require funds to say, is no guarantee of future results. But past performance can help uncover risk.

Always ask the fund company and/or person trying to sell you a fund to tell you not only its average annual return over different periods, such as the past five or 10 years, but also year-by-year results (the prospectus will typically list returns for recent years, but not necessarily all since inception). Average returns may mask wild swings in year-to-year returns, a sign of a fund's volatility.

The CGM Focus Fund (CGMFX) would be a good example (again, I am not "picking'' on this fund but simply using it to illustrate a point). CGM Focus returned an average of 8.2 percent a year compounded for the five years ended Dec. 31, 2009, compared with just 0.8 percent for the average large-cap stock fund. But after a huge 79.9 percent gain in 2007, a year the average large-cap fund rose only 8.4 percent, CGM Focus plunged 48.2 percent in 2008, compared with a 38.6 percent loss for the average large-cap fund.

Also look at a fund's return compared with an appropriate index or benchmark. A fund may be down simply because the overall market is down, and even good fund managers have bad years. But a fund that consistently trails its index, even when it makes money, is hardly worth it unless it also lowers your risk of loss in bear markets.

Of course, you want more than good relative performance, or how a fund does compared with an index. During market declines, advertisements always seem to pop up boasting how a fund has "beaten the market" in recent periods. If you look at the fine print, you may discover the fund's returns have been puny, or the fund has lost money, just not as much as the index. To get a handle on potential losses, ask about returns during bear markets and worst 12-month period, not necessarily worst calendar year. Few people invest only on Jan. 1, and the worst returns may occur at other times.

Also ask about the fund's worst "drawdown," or maximum cumulative loss from a peak to a trough. That's a number a fund prospectus is not required to disclose but that some fund analysts consider the ultimate measure of a fund's risk.

For do-it-yourselfers, at quote.yahoo.com you can get, after you enter a fund's ticker symbol in the "get quotes" window, performance numbers over different periods and share prices over time.

Humberto Cruz is a columnist for Tribune Media Services. E-mail him at yourmoney@tribune.comsource: www.chicagotribune.com

A bond survival guide for investors

2010-11-11T19:17:00.000-08:00

Rob Carrick

Stocks are the ties that bind you to bonds.

Yes, it’s true that bonds have low yields. It’s also true that bonds are headed for a crew cut when interest rates rise. In the eyes of many people, the stock markets are clearly the place to be just now.

But while these objections to having a full commitment to bonds today are all valid, they ignore a key point about building portfolios the right way. Stocks are unpredictable and the only sound way for most investors to manage the volatility is to keep bonds in their portfolio.

“For most of the time in the past 13 years or so, bonds have been negatively correlated to stocks,” explains Michael Herring, managing director and investment strategist at BMO Nesbitt Burns. “When stocks are down, bonds are up. So they provide a nice diversification effect, a counterbalance that dampens the volatility of the overall portfolio.”

The upshot? Bonds are essential, but right now they look like a loser’s investment. Deal with it by following our Bond Survival Guide.

Let’s start with the right mix of stocks and bonds. For what he describes as a balanced portfolio, Mr. Herring suggests a blend of 35 per cent bonds and 65 per cent stocks. That’s a rough guideline, of course. You can adjust it according to how aggressive or conservative you are.

Once you find the right mix for your needs, resist the temptation to lighten up on bonds because of the current market outlook. Instead, think short term.

Short-term bonds mature in five years or less, mid-term bonds run up to 10 years and long-term bonds mature in 10 years or more. You get more interest with long-term bonds, but they’re the most likely to cause you problems when interest rates rise. So stick with bonds maturing in one to five years, Mr. Herring said.

Mutual Funds, ETFs

One option is to invest in mutual funds and exchange-traded funds specializing in short-term bonds. Or, you can buy individual bonds or guaranteed investment certificates and use the tried-and-true laddering approach. That’s where you divide your money equally into bonds maturing in one through five years. As a bond matures, you reinvest in a new five-year term.

Your returns will be low if you do this – maybe 1.5 to 2.5 per cent on a blended basis. But your portfolio will also be much more resistant to rising interest rates. Mr. Herring calculates that a five-year bond ladder would be only 40 per cent as sensitive to rising rates as the overall bond market.

Bonds maturing in 10 years or more present the biggest risk of jarring price declines. Let’s be clear here – bonds don’t stop paying interest when rates rise, but they do fall in price. Actual bonds will repay your upfront investment back at maturity, while bond funds and ETFs will rebound in price as interest rates fall in the future.

Still, even if you’re holding a bond until maturity, the potential price declines over the short term can sting.

How It Works

Some background: As bond yields rise, bond prices fall. If the yield on a 30-year Government of Canada bond were to move up by a full percentage point, the bond’s price would drop 18 per cent, according to Mr. Herring. Even if you’re holding to maturity, that’s quite a hole to see punched in your portfolio when your monthly statement arrives.

On the other hand, if you’ve got new money to invest in bonds, higher rates will be welcome. The annual maintenance of your bond ladder will help in this regard. “You’ll be given opportunities to invest at successively higher yields,” Mr. Herring said.

A lot of investors have been improving a bit on the low yields of government bonds by branching into bonds issued by financially strong companies. Mr. Herring said his firm believes both kinds of bonds are fully valued, which is to say they have room to fall in price as rates rise. At best, you’ll likely just get the interest paid on these bonds. The capital gains that investors have seen from bonds as interest rates fell are likely a thing of the past.

High-yield bonds, issued by less financially strong companies, may have a little room left to rise in price, Mr. Herring said. These bonds offer much higher yields than blue-chip companies and governments, but much more risk if the economy struggles. In fact, the risk profile of high-yield bonds is closer to stocks than that of government bonds.

While it’s essential to hold some bonds in your portfolio as a buffer against the stock markets, many investors have gone overboard since the 2008 market crash. Mr. Herring’s take on the right mix of stocks and bonds for today’s market? “We’re advocating a balanced investor hold fewer bonds than they hold stocks.”

How To Handle Bonds

1. Determine your appropriate asset mix of stocks and bonds and stick to it.

2. Use a five-year bond ladder, in which you stagger your holdings in bonds or GICs.

3. Avoid long-term bonds.

4. Recognize that both corporate and government bonds are fully valued now and vulnerable to price declines when interest rates rise.

5. Remember the rationale for bonds: They tend to go up when stocks go down.
source: www.theglobeandmail.com

10-step inflation survival guide

2010-11-11T19:14:00.000-08:00

ROCKVILLE, Md. (MarketWatch) — There are snappy headlines all over cyberspace right now about the Federal Reserve setting sail with QE2 — or a second round of “quantitative easing” policies, for those more aware of the famous ocean liner than economic jargon.

In layman’s terms, quantitative easing is a monetary policy used by central banks to stimulate the economy by increasing the supply of money in the system and boosting the excess reserves of banks. Or in more pejorative terms, the Fed is printing more money to satisfy Washington’s runaway spending and hopefully prop up an ailing economy.

I’ll leave the merits and menaces of QE2 — and the nautical puns — up to those on the rest of the Internet. The bottom line is that regardless of whether another round of quantitative easing is a success or failure, the result will be the eventual rise of inflation and devaluation of the dollar.

To help investors prepare their portfolios, here’s a 10-step inflation survival guide.
Get rid of your cash

This may be hard for many risk-averse investors to do, but the bottom line is that during periods of rapid inflation, your money is literally worth more today than it will be tomorrow. So “spend” it. Whether it means buying a car now instead of next year or investing in the stock market, that depends on your personal situation. But sitting on cash will cost you in the long run. Read “How to Invest $1,000 Now.”
Bet against the dollar

So what do you do with that cash? Well, the other side of the equation is that when inflation takes root, a nation’s currency typically devalues. That means you would be wise to bet against the dollar. A number of ETFs allow you to do this. PowerShares DB US Dollar Index Bearish ETF /quotes/comstock/13*!udn/quotes/nls/udn (UDN 27.01, -0.21, -0.77%) is an inverse play on the New York Board of Trade’s U.S. Dollar Index. If you’re more sophisticated about currencies and macro trends, you can play exchange rates between the dollar and other currencies like the yen or euro.
Get rid of Treasurys

U.S. Treasury bonds are bad news during an inflationary environment. That’s because as yields start to rise — and at nearly zero, they have to, eventually — bond prices naturally fall. That means you don’t want to be stuck holding the bag.
Bet against Treasurys

You can benefit from the flip side of the collapse in Treasury bonds by shorting them. You can do that by purchasing an inverse ETF just like the previous play on the dollar — for instance, the ProShares UltraShort 20 Year Treasury ETF /quotes/comstock/13*!tbt/quotes/nls/tbt (TBT 36.61, +0.17, +0.47%) . A more sophisticated play is to buy puts Treasury funds such as the iShares Barclays 20 Year Treasury Bond ETF /quotes/comstock/13*!tlt/quotes/nls/tlt (TLT 96.15, -0.18, -0.19%) . Either move not only protects your portfolio from a likely collapse in T-Notes but provides a nice potential for profits.
Buy Treasury inflation-protected securities

These types of U.S. Treasury bonds (known as TIPS for short) provide the safety of a government bond with the bonus of protection against inflation. You can buy these outright, or via the iShares Barclays TIPS Fund ETF /quotes/comstock/13*!tip/quotes/nls/tip (TIP 111.03, +0.12, +0.11%) . Unlike conventional Treasurys, these bonds see their value adjust with inflation to ensure you don’t get eaten up as the dollar fades. If you have any doubt whether or not TIPS work or how bullish Wall Street is on this vehicle, consider that in October the U.S. Treasury successfully executed its first-ever TIPS auction in which the bonds actually had negative yields. That’s because the specter of inflation is so likely that investors were willing to enter the investment in the red with the expectation of rising yield over the life of the investment that makes a short-term loss well worth it.

Buy gold

Gold has already significantly run up in price in 2010 with the expectation of inflation — along with a low-risk, bunker mentality among some conservative investors. But if inflation takes hold, this dollar-backed commodity could soar even higher. If this turns out to be the case, don’t be tempted by mining companies. Your best bet is to buy gold through a reputable dealer or through a gold ETF like the SPDR Gold Trust ETF /quotes/comstock/13*!gld/quotes/nls/gld (GLD 137.29, -0.37, -0.27%) . Read “Gold Prices at $10K — Optimistic or Just Insane?”
Buy crude oil

Like gold, crude oil is priced in U.S. dollars. As a result, when the dollar drops in value, it takes more dollars to buy the same amount of oil. That means oil prices rise in an inflationary environment, as do profits for pure plays in the crude oil sector. Retail investors cannot trade spot crude, but they can invest in an ETF such as the iPath S&P GSCI Crude Oil Total Return ETN /quotes/comstock/13*!oil/quotes/nls/oil (OIL 24.88, -0.12, -0.46%) , which reflects West Texas Intermediate (WTI) crude oil futures contracts. Then there are more conventional oil plays such as energy blue chip Exxon Mobil Corp. /quotes/comstock/13*!xom/quotes/nls/xom (XOM 71.71, -0.12, -0.17%) and pipeline partnerships such as Magellan Midstream Partners /quotes/comstock/13*!mmp/quotes/nls/mmp (MMP 56.53, -0.16, -0.28%) , which offer plump dividends.
Invest heavily abroad

A weak U.S. dollar implies higher returns can be found abroad. After all, if investors won’t be buying Treasurys as readily, they will putting their money somewhere else. As for where the opportunity lies, that depends on how much risk you’re willing to take. Many foreign stocks trade on domestic exchanges as ADRs and can readily be traded via your brokerage accounts. If you are not comfortable investing in a specific stock, you can invest in a specific region or currency via an ETF — such as the iShares MSCI Brazil Index ETF /quotes/comstock/13*!ewz/quotes/nls/ewz (EWZ 78.08, +0.12, +0.15%) as a pure play on Brazil, or the CurrencyShares Canadian Dollar Trust /quotes/comstock/13*!fxc/quotes/nls/fxc (FXC 99.12, -0.30, -0.30%) if you believe in Canada. You may want to consider broader global funds in the ETF and mutual fund arena such as the iShares Emerging Markets Index ETF /quotes/comstock/13*!eem/quotes/nls/eem (EEM 47.37, -0.19, -0.40%) or a whichever global mutual fund your 401k provider offers. Read “Top 5 Asia Stocks Trouncing the Market.”
Invest sparingly in domestic tech stocks

Technology companies seem to be a bedrock investment for any portfolio. Regardless of economic circumstances, the most innovative computers and software are necessary to our way of life and will always be in demand. Consider the massive launches that Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 317.20, +0.55, +0.17%) pulled off in the recession with the 1.7 million iPhone 4 sold in the first three days, or 3 million iPads in about two and half months after its debut. And this doesn’t even acknowledge the weight of corporate IT spending as businesses upgrade networks and optimize productivity with the latest gadgets and software. You should never put all your eggs in one basket by abandoning the U.S. altogether — but realize that sluggish domestic stocks will suffer in amid a weak dollar environment. To root your portfolio in America, diversify with some domestic tech stocks.
Invest sparingly U.S.-based multinationals

Another way to invest in domestic stocks but avoid inflation is to take shelter in multinationals. Think blue chips like Caterpillar Inc. /quotes/comstock/13*!cat/quotes/nls/cat (CAT 82.50, +0.06, +0.07%) and United Technologies Corp. /quotes/comstock/13*!utx/quotes/nls/utx (UTX 75.39, -0.76, -1.00%) , which saw significant lifts to profits in the fourth quarter of 2009 thanks to a weaker dollar. That’s because a weak dollar actually lifts foreign operations of these multinationals and more than offsets challenges in the states. Consider that a year ago, United Technologies’ chief financial officer told Bloomberg that the company adds $10 million in operating income for each penny the euro gains versus the dollar. Or in the case of Caterpillar, a weaker U.S. dollar means cheaper exports — so foreign businesses can buy expensive machinery at a better price and are more likely to go shopping. Domestic companies like CAT and UTX are actually helped by a weak dollar — so seek them out as a way to balance your major investments abroad.

Jeff Reeves is editor of InvestorPlace.com . As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter at http://twitter.com/JeffReevesIP .
source: www.marketwatch.com

Investors Add Again to Stock Funds

2010-11-11T03:37:00.000-08:00

Long-term mutual funds had an estimated $5.02 billion of inflows as investors added money to stock funds for the third time in four weeks, while hybrid and bond funds continued to bring in cash, according to the Investment Company Institute.

Bond funds have thrived, as they typically do in a lower interest-rate environment, while stock funds have failed to consistently attract new investment for more than a year. ICI posted an inflow streak during the summer in which nearly $50 billion was added to mutual funds, almost entirely on bond funds, before posting outflows at the end of August.

Meanwhile, funds in total have reported nine straight weeks of inflows, a combined $50 billion on an unrevised basis. Money has been added to the fund on a net basis for 22 of the past 23 weeks.

For the week ended Nov. 3, ICI reported that stock funds had inflows of $729 million, compared with outflows of $2.41 billion the prior week. U.S. equities had outflows of $1.13 billion, while $1.86 billion was added to foreign funds.

Last month, stock funds reported their first weekly increase since May, ending a 23-week streak that saw nearly $92 billion pulled from the funds. The recent trend of inflows was due to continued investment in foreign-focused funds, while outflows from domestic equities moderated.

At the same time, bond funds took in $3.54 billion, down from $5.35 billion the previous week, said ICI. Taxable funds had inflows of $3.14 billion and municipal ones added $405 million.

Investors also put $745 million into hybrid funds, compared with prior-week inflows of $356 million. Such funds can invest in both stocks and fixed-income assets.

Meanwhile, assets in money-market funds climbed by a net $15.92 billion in the week ended Tuesday as investors added money to prime and government funds, according to iMoneyNet.

IMoneyNet's seven-day yield on taxable money-market funds held steady at the record low of 0.03% for the third consecutive week. The yield has remained low after the Federal Open Market Committee last week said it would keep the target federal-funds rate for interbank lending in the range of 0% to 0.25% for "an extended period."

Cash rushed out of money-market funds in the first half of the year due to low yields, and despite a small reprieve during the summer, the fund flows have been mixed in recent months. Morningstar Inc. earlier Wednesday reported outflows continued for money-market funds in October, as investors redeemed a net $16.6 billion.

For the week ended Tuesday, total assets in money-market funds climbed to $2.784 trillion, said iMoneyNet.

Taxable funds grew $15.2 billion to $2.457 trillion as institutional investors added $17.33 billion and individual investors took out $2.13 billion. Prime funds, which invest in securities such as commercial paper, had $9.93 billion of inflows, while government funds had $5.27 billion added to them.

Tax-free funds had inflows of $718.2 million, putting asset totals at $327.09 billion. Yields for seven-day funds fell to 0.03% from 0.04% but held steady at 0.03% for 30-day funds.
source: online.wsj.com

Here come ‘hedged’ mutual funds

2010-11-11T03:30:00.000-08:00

SAN FRANCISCO (MarketWatch) — In the late 1990s, Stephen Roseman had a whiteboard in his office to keep track of all the companies in the nascent video-on-demand sector.

But for all the hype, it would be years before video on demand was widely adopted. These days, according to Roseman, many people can barely remember life without the technology.

This anecdote is how Roseman explains why he left the hedge-fund world to start a mutual fund. While talk of alternative strategies in the form of a mutual fund raged for years without much happening, it’s now beginning to take off and apparently is going to be big.

Others agree — even investors who have backed hedge funds for years. “We’re at the very early stages of a multitrillion-dollar wave that’s going to wash over the long-only asset-management industry,” said Charles Krusen of Krusen Capital Management, which has invested in hedge-fund giants including Paulson & Co., Moore Capital and D.E. Shaw.

“For the mutual-fund industry, hedged mutual funds provide equity-like returns with less volatility, with additional transparency and regulation,” he added. “We think there’ll be a huge move to these types of funds.”

Roseman, chief executive of New York-based Thesis Fund Management, oversaw about $2 billion in assets at hedge-fund firm Kern Capital Management between 2003 and 2005. Earlier this year, he launched a mutual fund called the Thesis Flexible Fund /quotes/comstock/10r!tflex (TFLEX 9.99, -0.03, -0.30%) .

He isn’t the first hedge-fund manager to do this. AQR Capital Management, co-founded by Clifford Asness, raised more than $1 billion in less than a year after launching several mutual funds.

But Roseman reckons he’s at the vanguard of a movement that will see more managers take their trading skills to the retail-investing arena. “It’s not that people don’t want the strategy; it’s that they don’t want the hedge-fund structure,” he said. Watch Roseman talk about Thesis Flexible Fund in MarketWatch video.
Hedge vs. mutual

Hedge funds take short positions — bets on falling prices — as well as long positions that benefit from rising valuations. They can also use borrowed money, or leverage, to magnify returns. They usually lock investor money up for a quarter or more, and some are free to trade any securities or derivatives anywhere in the world.

Stephen Roseman, Thesis Fund Management

The goal is to generate positive returns, irrespective of the direction of the overall market. This is usually all wrapped up in a limited-partnership structure where the manager charges an annual fee of 2% or so and takes about 20% of any profit each year.

That “absolute” return goal contrasts with traditional mutual funds, which try to beat benchmarks such as the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,219, +5.31, +0.44%) .

Hedged mutual funds use some of the tools and strategies common to hedge funds, such as short-selling and some leverage. But they also offer the benefits of mutual funds, such as daily liquidity and lower fees.

Investment bank Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 167.22, +0.67, +0.40%) , one of the largest hedge-fund managers in the world, advised investors to add this new breed of mutual fund to their portfolios in a late September white paper.

The 2008 financial crisis left many uncertain about whether a traditional mix of equities and bonds can generate enough return, the bank said, noting that investors pulled $234 billion from U.S. stock mutual funds in 2009.

Adding hedged mutual funds to a traditional portfolio of 70% equities and 30% fixed income may generate higher returns with less volatility over time, according to the Goldman white paper.

These types of funds — which Goldman calls nontraditional mutual funds — have been around since the 1980s. But they’ve proliferated in recent years.

Goldman analyzed flows of money into these types of funds using data from Morningstar /quotes/comstock/15*!morn/quotes/nls/morn (MORN 50.61, +1.54, +3.14%) , Lipper and Strategic Insight. Morningstar calls them “alternatives,” while Lipper gives them the name “global flexible portfolios.” In Strategic Insight’s world, they’re “strategic income” funds, the bank said.

In 2005, these funds pulled in a net $29.7 billion, or 11% of total long-term mutual-fund flows. In 2009, they took in a net $121 billion, or a quarter of mutual-fund industry flows. In the first half of this year, a net $56.5 billion flowed in, or 27%, Goldman indicated.

“The mutual-fund industry will likely continue to see the emergence of new and innovative strategies,” the bank wrote in the white paper. “As investors gain a better understanding of these strategies, adoption and usage will increase, but currently there remains significant growth potential.”
Warming to the subject

Brad Alford, who invested in hedge funds for more than two decades for institutions including Duke University’s endowment, is a convert to hedged mutual funds.

Alford is now chief investment officer of Alpha Capital Management, which offers managed accounts that invest in several large hedged mutual funds.

His picks include the BlackRock Global Allocation fund /quotes/comstock/10r!malox (MALOX 19.50, +0.05, +0.26%) , Pimco’s All Asset All Authority fund /quotes/comstock/10r!pauix (PAUIX 11.26, +0.01, +0.09%) and Ivy Asset Strategy /quotes/comstock/10r!ivaex (IVAEX 24.60, +0.12, +0.49%) . “There are so many great mutual funds that look like hedge funds now,” Alford said.

The major difference is that hedged mutual funds are structured under the Investment Company Act of 1940, while hedge funds are usually limited partnerships.

All the Investment Company Act funds have to offer investors the ability to withdraw their money every day — daily liquidity, as Alford and others call it.

In contrast, during the financial crisis, many hedge funds froze redemptions or limited withdrawals in other ways. That surprised and angered some investors, and it’s a big reason why hedged mutual funds are gaining more of a following now, Alford commented. source: www.marketwatch.com

Don’t write off all these freshman mutual funds

2010-11-11T03:28:00.000-08:00

With nearly 8,000 mutual funds on the market, there are already plenty to choose from. Yet in a typical year a few hundred new offerings pop up.

Don't write off all these freshman funds. It's likely a select group will prove their mettle through good markets and bad, including a handful of recent offerings from managers with strong track records.

Yet too many try to tap into fleeting investor moods influenced by the market's latest moves. Often, new funds reflect old thinking. That's because a launch typically takes more than a year, from a glimmer in a fund company executive's eye to regulatory approval.

Many of the newest funds were conceived during or just after the financial crisis. It was a turbulent end to a decade that got off on the wrong foot when the dot-com bubble burst. Taxable bonds ended up posting an average annual return of 6.3 percent over the last decade, compared with an average annual loss of about 1 percent for stocks in the Standard & Poor's 500.

That surprising outcome may explain why so many new funds aim to protect investors from stock declines.

"They're responding to the market fears and frustrations over the past 10 years," says Dan Culloton, associate director of fund analysis with Morningstar. "A lot of it is just pure-and-simple rearview mirror product management."

Many of the 150 funds that have hit the market in the last six months are traditional stock funds — not much different from the ones that typically delivered returns approaching 10 percent, before trouble hit last decade. But many of the new funds take a sharply different tack, in reaction to recent events:

Go long AND short: Morningstar counts 18 new funds — one of every eight launched since May — in its long-short category. Just over a year ago, there were only 78 funds total in the entire category.

Investing long is betting a stock will eventually rise. Combining that traditional approach with a short strategy means also trying to take advantage of stocks expected to fall. If the market declines an investor can still profit.

Hedge funds pioneered long-short investing. Now the approach is also available in mutual funds within reach of average investors.

These funds attempt to limit losses when stocks are falling. But if markets rise, expect to lag.

Emerging market boom: Seventeen new funds focus on emerging markets, fast-growing countries like China, India and Brazil that have recently rewarded investors. Emerging markets stock funds have returned an average 28 percent over the past 12 months, compared with the 16 percent rise in the Standard & Poor's 500.

Most of the new offerings invest across a wide swath of emerging markets, while a few target regions like Asia or Latin America. Two are bond funds: Oppenheimer Emerging Markets Debt (OEMAX) and Invesco Emerging Market Local Currency Debt (IAEMX).

Adding such holdings to mostly U.S.-focused portfolios will typically boost returns, because emerging market economies are likely to continue growing faster than our own. But expect bumps along the way, since emerging market stocks tend to be unusually volatile.

Heavy on the commodities: Nine new funds concentrate on commodities. Investments in gold or oil, or crops such as corn and wheat, often don't rise or fall in synch with stocks, and can fare well even during times of inflation. One entrant to the category is T. Rowe Price Real Assets (PRAFX), which invests in real estate, energy, and precious metals and mining stocks. It's from a large, well-known fund company, and carries a modest annual expense ratio of 0.85 percent.

Such funds should probably be used sparingly, because commodities are volatile. Consider what happened with oil, which peaked at $147 a barrel in mid-2008, only to tumble below $40 months later when the financial crisis hit.

Morningstar's Culloton argues some new funds are worth a look, based on the strength of their managers' records at older funds. A few enticing new products on the market or in the pipeline:

Fairholme Allocation. Bruce Berkowitz, chosen in January as Morningstar's Domestic Stock Fund Manager of the Decade as well the top manager of last year, filed with regulators last month to launch his company's third fund.

Berkowitz built his reputation at Fairholme Fund (FAIRX), which has grown to nearly $17 billion from less than $11 billion in January. Investors have flocked to the stock fund because of its record: in the top 1 percent of its peers over the past five- and 10-year periods. Fairholme Allocation proposes to keep a focused portfolio of stocks, bonds and cash, with no restrictions on how much to invest among those categories at any one time.

Osterweis Strategic Investment (OSTVX), which debuted Aug. 31, also takes a wide-ranging approach, holding stocks, bonds and cash. The new fund is noteworthy because it comes from the company behind the $1.2 billion Osterweis Fund (OSTFX), which has a reputation for protecting investors when stocks are tanking.

Calamos Discovery Growth (CADGX), a midcap stock fund launched in June. Calamos Investments is best known for its expertise in half-stock, half-bond hybrid securities called convertibles. Its best-known fund is the $3.3 billion Calamos Convertible (CCVIX).

Morningstar's Culloton says these four new funds need to prove themselves, despite the strong reputations their managers bring. That's why Morningstar doesn't even rate funds until they have three-year records.

"But if you find a new fund from a good shop, with managers who have a strong record, you might be more inclined to take a flyer on it than with other new funds," he says. "Those can be hidden gems."

Mark Jewell is a columnist for The Associated Press. His column appears on Thursdays.
source: www.northjersey.com

Shariah funds do well in mildly bearish times

2010-11-10T06:00:00.000-08:00

Nov 10, 2010 - Shariah-compliant mutual funds are probably not the best performers in a bullish market of current times, where the rally is primarily driven by banking stocks. But in a slightly bearish market these funds give decent returns.

In India, this type of funds is yet to become popular among the masses. As a result, currently, the number of this kind of mutual funds is just a handful.
But we may see more fund houses coming up with such funds in the time to come. Currently, Taurus Mutual Fund has Taurus Ethical Fund, Benchmark Mutual Fund has Shariah Benchmark Exchange Traded Scheme and Tata Mutual Fund has the Tata Select Equity Fund. If you are planning to invest in these funds, then below are a few points that may help you to understand them.

What are Shariah-compliant funds?
Shariah-compliant funds are investment vehicles governed by Islamic laws and fully compliant with the principles of Islam.

What is meant by compliance to the principles of Islam?
Shariah-compliant funds are prohibited from making investments in industries categorised as morally deficient, such as those related to gambling or alcohol. This is because Islam does not allow any form of exploitation. Any kind of investment in conventional banking is outlawed. With the concept of debt also contrary to the principles of Islam, investment in highly-leveraged companies is also not permitted for Shariah-compliant funds. These funds do not invest in sectors such as liquor, tobacco, consumer goods, finance and banking and in interest bearing securities.

What are their current assets under management?
The three funds mentioned above currently manage assets worth Rs170 crore.

Are the investors in these funds only from the Islamic community?
According to a couple of fund managers, majority of the investors in these funds are from non-Islamic community.

In which markets do these funds perform well?
According to fund managers these funds perform well in a bearish market and not in bullish market of recent times. That is because the current rally in the market is led by stocks in the banking sector and Shariah-compliant funds do not invest in banking stocks.
source: www.dnaindia.com

The fabulously fun world of funds

2010-11-10T05:58:00.000-08:00

You know all about mutual funds, and quite likely own some in your portfolio. You’re also probably familiar with exchange-traded funds, which combine the diversification of mutual funds with the trading flexibility of stocks.

But do you know the difference between a segregated fund and a closed-end fund? And what, exactly, is a hedge fund? Hint: It’s not money the neighbours pool together to keep their bushes looking neat and tidy.

Well, wonder no longer. Today, we’re taking a short walk through the fabulously fun world of funds. So grab hold of the rope, kids, and let’s begin.

Mutual Funds

Mutual funds are the most popular investment vehicles out there, with Canadian assets under management of about $720-billion, according to Investor Economics.

By investing a pool of capital in stocks, bonds and other assets, mutual funds provide benefits such as diversification, professional management and liquidity. They’re a great way for people with limited funds to get started in investing, but management costs can be high, and you also have to watch out for front- and back-end “loads.” Most mutual funds are open-ended, meaning the fund doesn’t have a set number of shares. Rather, it issues new shares and redeems existing ones daily, at the net asset value of the fund.

Exchange-traded funds

Like mutual funds, ETFs are also open-ended. The difference is that ETF units can be bought and sold throughout the day on a stock exchange, whereas mutual fund orders are processed after the close of trading based on the day’s final prices.

Another difference is that most ETFs are designed to passively track an index, which keeps their costs low relative to active mutual funds that pay a manager who tries to beat the index (most don’t). Because they’re cheaper and more flexible than mutual funds, ETFs are growing in popularity, but the ETF industry is still only about one-twentieth the size of the mutual fund industry.

Segregated Funds

Segregated funds are issued by insurance companies and their chief selling point is safety. They’re called “segregated” because the fund’s assets are held separately from the insurer’s other assets, which protects investors in the event of the firm’s insolvency.

Seg funds provide exposure to rising markets but typically guarantee to return a minimum portion of the investor’s capital after 10 years – usually 75 per cent or 100 per cent – even if the market has tanked. Guarantees also kick in at death, and the assets are usually beyond the reach of creditors should a business owner get sued or go bankrupt.

All these guarantees come with costs, which is why not everyone is a fan of seg funds. “At the end of the day you’re buying an insurance policy,” says Jason Heath, certified financial planner with E.E.S. Financial Services Ltd. in Markham, Ont. Investors can accomplish the same thing at lower cost by having a conservative allocation of stocks and fixed-income investments, and by structuring their business affairs to keep personal assets away from creditors, he says.

Closed-end funds

As the name implies, closed-end funds issue a set number of shares and typically don’t sell new units or redeem existing ones. If you want to invest in a closed-end fund after its initial public offering, you have to buy shares on a stock exchange from someone who is selling.

This means the price is determined by supply and demand, unlike mutual funds and ETFs, which trade based on the underlying net asset value of the fund. Closed-end funds can trade at a premium or, more commonly, a discount to NAV.

While investors can come out ahead by buying closed-end funds that are trading at a hefty discount, you also have to watch out for risks, says Gail Bebee, author of No Hype: The Straight Goods on Investing Your Money. Some funds are thinly traded and can’t be easily bought and sold, and managers sometimes use leverage and exotic trading strategies, which can magnify gains – and losses.

Hedge funds

Hedge funds can go long, go short (bet that a stock will fall), use borrowed money, derivatives and just about any other speculative tool at their disposal. They’re less transparent than mutual funds, aren’t subject to the same regulation and their compensation structure is also different.

Typically, a fund will charge a management fee of about 2 per cent plus a performance fee of 20 per cent of any profits above a certain threshold. (And no, the fund doesn’t pay you when it loses your money).

While some hedge funds, true to their name, hedge their positions to minimize risk, others are highly speculative. Remember all the hedge funds that blew up during the financial crisis? “Part of the problem with performance bonuses is that it motivates the manager to take extra risk,” says Garth Rustand, executive director of the Vancouver-based Investors-Aid Co-operative of Canada, which provides fee-only services and information to investors. “There’s still a perception out there that big risk will get you big gains. Well, it doesn’t happen.”

Learning about the various types of funds can make you a more informed investor, but there’s really no need to pay a lot of fees or make things too complex, he says. Most people can do just fine owning a small number of low-cost mutual funds or index ETFs, and giving the more exotic fund classes a pass.

Comparing assets

Value of Canadian mutual fund assets: $720-billion

Value of Canadian-listed exchange-traded funds: $36.2-billion

Value of segregated fund assets in Canada: $83.3-billion

Value of hedge fund assets in Canada: $45.7-billion

Value of closed-end funds: $24.1-billion

Source: Investor Economics
source: www.theglobeandmail.com

5 Ways To Measure Mutual Fund Risk

2010-11-10T05:55:00.000-08:00

There are flashy numbers of dividend pay outs in percentages declared by fund houses on a regular basis in newspapers, periodicals, websites, etc. These numbers attract investor eyeballs towards their schemes. Now, SEBI has stepped in and has asked fund houses to disclose their pay outs in rupee terms. This shows that investors are trying to get a clearer picture on their investment returns through dividends. However, investing by considering only historical returns and dividends in a mutual fund scheme is risky. Investors need to evaluate the risk involved in mutual fund schemes before investing and review their investments, say, at least once a year.

Investors may perform a small 5-step exercise to evaluate riskiness of particular mutual fund scheme, as described below

We will take a hypothetical example of ABC-Equity (G) scheme to compute its riskiness in our Paanch Ka Dum (Power of 5) concept

1) Alpha

Alpha basically is the difference between the returns an investor expects from a fund, given its beta, and the return it actually produces.

Computation- Alpha equals (Fund return-Risk free return) – (Funds beta) (Benchmark return- risk free return).

Example-1

Fund return (Fund performance in last one year) 75%

Risk free return 8%

Benchmark return (Sensex performance in last one year) 41%

Beta 0.69

By computing with above formula we will get alpha as 0.44 for this fund.

A positive alpha means the fund has outperformed its benchmark index. Whereas, a negative alpha indicates an underperformance of the fund. The more positive an alpha the healthier for investors.

Here, the fund has underperformed since an alpha we computed is less than beta. It means the fund has produced less returns considering the risks fund is taking while comparing it with actual return to the one predicted by beta.

Note- The ideal time period for analysing alpha and beta value is one year returns from their funds.

2) Beta

Beta is a measure of the volatility of a particular fund in comparison to the market as a whole, that is, the extent to which the funds return is impacted by market factors. Beta is calculated using a statistical tool called regression analysis.

By definition, the market benchmark index of Sensex and Nifty has a beta of 1.0.

It may be challenging for investors to compute it for each mutual fund scheme. However, one need not worry. Important statistical measures for various mutual fund schemes are easily available on financial websites like InvestmentYogi where mutual funds performance is tracked and analysed regularly.

Let us consider 3 possible scenarios in interpreting beta numbers

Sensex is assumed as benchmark index.

1.A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index. The fund will move up and down in tandem with the movement of the markets (as indicated by the benchmark)

2.A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index.

3.A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index. It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper.

For example, if the beta of ABC-Equity (G) is 1.4 then it is considered as 40 percent more volatile than the benchmark index (beta of benchmark index being 1).

Similarly, in example-1, as we have considered beta of ABC-Equity (G) fund as 0.69 this means the mutual fund scheme will be less volatile than its benchmark index.

Note- Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors can opt to invest in mutual fund schemes which have higher beta value for higher returns taking more risk.

3) R-Squared

As discussed above, beta is dependent on correlation of a mutual fund scheme to its benchmark index. So, while considering the beta of any fund, an investor also needs to consider another statistic concept called R-squared that measures the correlation between beta and its benchmark index. The beta of a fund has to be seen in conjunction with the R-squared for better understanding the risk of the fund.

R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation. If a funds beta has an R-squared value that is between 0.75 and 1, the beta of that fund should be trusted. On the other hand, an R-squared value that is less than 0.75 than it indicates the beta is not particularly useful because the fund is being compared against an inappropriate benchmark index. This fund will not give returns similar to their benchmark index. The lower the R-squared the less reliable is the beta, and vice versa.

The R-squared of an index fund, investing in same securities and in the same weightage as the index, will be one.

Note- Beta and R-squared are calculated based on the historical data. They give an adequate estimate of risks to be evaluated by investors before investing.

4) Standard Deviation (SD)

The total risk (market risk, security-specific risk and portfolio risk) of a mutual fund is measured by Standard Deviation (SD). In mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance. In other words can be said it evaluates the volatility of the fund.

The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its average return of a fund over a period of time.

In other words, it is a measure of the consistency of a mutual funds returns. A higher SD number indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a lower SD.

Note- For SD to be an effective tool, investors will need to use it in comparison with peer group mutual funds. For example, a large-cap mutual fund is to be compared with a large-cap mutual fund with the same investment objective(s).

5) Sharpe Ratio

Sharpe ratio (SR) is another important measure that evaluates the return that a fund has generated relative to the risk taken. Risk here is measured by SD. It is used for funds that have low correlation with benchmark index. This ratio helps an investor to know whether it is a safe bet to invest in this fund by taking the quantum of risk.

The higher the Sharpe ratio (SR), the better a funds return relative to the amount of risk taken. In other words, a mutual fund with a higher SR is better because it implies that it has generated higher returns for every unit of risk that was taken. On the contrary, a negative Sharpe ratio indicates that a risk-free asset would perform better than the fund being analyzed.

It tries to find out the excess return generated by a mutual fund over and above a risk-free rate of return such as an RBI bond or a post-office savings scheme, etc.

Lets say the Sharpe ratio equals 0.957 for a fund. As discussed above, the higher this ratio, the better a funds return relative to the amount of risk taken. Here, this fund could be a risky investment option for their investors since ratio is just near to 1 (approx.).

Quick View

Mutual Fund Evaluation Criteria–

Consistent Performer- Low SD- High SR- Higher ranked fund

Volatile Performer- High SD- Low SR– Lower ranked fund

Mutual Fund Evaluation Criteria-

Consistent Performer- Low SD- High SR- Higher ranked fund

Volatile Performer- High SD- Low SR- Lower ranked fund

Note- Comparison should be made with peer group for accurate evaluation.

Conclusion

This Paanch Ka Dum concept we just discussed to evaluate a mutual funds risk will enable an investor to take a wise decision on his mutual fund investments. An investor should not blindly invest by considering only past returns mentioned, but needs to do some research of the fund schemes and reviewing their performance at regular intervals.

These risk measure are readily calculated and are available on InvestmentYogis financial website. You can logon to www.investmentyogi.com and click on the mutual fund tab to look for the fund you wish to evaluate. You will find the latest data for all these parameters (under returns tab of a particular fund). However, the above measures cannot be viewed in isolation while evaluating the risks of investing in a mutual fund scheme. Other important parameters such as the corpus held, disclosure norms followed by the AMC, portfolio composition, consistency in investment objectives and strategy must also be considered.
source: sify.com

Banks, mutual funds on RBI radar

2010-11-10T05:53:00.000-08:00

The Reserve Bank of India , among others, has voiced its concerns about the circularity of investments between banks and mutual funds . The time period chosen for this analysis was from December 2008 to November 2009. However, market sources are questioning why the central bank has chosen a year old period to do such an analysis, especially when it is in a position to access latest data. In the subsequent months, the central bank itself has expressed its concern on the issue and banks have also reportedly taken corrective action.

Indian business schools have always been on the multinationals’ radar when it comes to hiring fresh talent. Royal Bank of Scotland is one more multinational bank to have set its sights on the managerial talent from Indian business schools for its global offices. Its global market head was in India this week to make presentations at the Indian Institute of Management in Kolkata. RBS is said to have hired some 11 management graduates this season despite the slowdown in the global financial market. Most of them are expected to be in the treasury and risk management areas.

In a retrenchment mode?

One often sees heads roll when market are volatile. That is what has happened in HSBC Bank. Insiders say the British bank plans to move about 100 employees from its back office to the front office. While the management is actually looking at retrenching people, one is not sure if such a move would go down well, especially with the back office employees.

Janakalyan Bank chief quits

The chairman of Janakalyan Sahakari Bank, a state-based co-operative bank, RP Mishra, who has held this post for several years, has put in his papers, reportedly over differences with the Rashtriya Swayamsevak Sangh (RSS). Janakalyan Bank, which is among the best-managed co-operatives, has strong leanings towards the Hindu-right wing outfit. What is surprising is that it is very rare that one gets to see revolt in such a cadre-based organisation.
source: economictimes.indiatimes.com

Points to consider when deciding between mutual funds and individual bonds

2010-11-10T05:51:00.000-08:00

Q. I am currently invested in the Pimco Total Return Bond fund, which I’m very happy with. A financial planner is trying to convince me selecting individual high-quality corporate bonds would be more beneficial in terms of protecting myself from potential future interest rate changes and fluctuations. Do you agree with his assessment? Do you favor mutual bond funds or individual bonds? I am near retirement and am concerned with asset preservation.

A. Without knowing more about your personal situation, it’s hard to say which strategy would be best for you. It depends on, among other things, your overall asset allocation, how much income you need, your risk tolerance and how much money you have to invest. Individual bonds may require large initial investments, so it could take a big chunk of cash to buy enough bonds to achieve the same impact as a mutual fund.

"Mutual funds are great vehicles for diversification, as they can allow a smaller investment to enjoy the benefits of greater diversification that you could achieve with larger pools of money," said Jody D’Agostini, a certified financial planner with AXA Advisors/RICH Planning Group in Morristown.

By comparison, when using individual bonds, the number of holdings an investor will be able to purchase is typically limited, and thus each particular security will have a greater impact on the portfolio.

"The investor should understand the concentration risk and the potential impact if one or more of the bonds were to default," said Brian Kazanchy, a certified financial planner with RegentAtlantic Capital in Morristown.

Kazanchy said you also should be cognizant of the fees that accompany your investments. With a mutual fund, the fund expense ratio is easy to look up in the prospectus or online, but individual bonds don’t have an expense ratio. Also, there are transaction fees which are very clear for mutual funds. With individual bonds, it is not very clear, he said.

"A bond broker is compensated by a bond spread — the difference between what the bond is purchased at and what it is sold for," Kazanchy said. "If an investor wants to purchase individual bonds on their own, they should have the knowledge and tools to evaluate the true cost of the broker’s compensation. If not, then they should stick to mutual funds."

The benefit of owning individual bonds is a measure of control, Kazanchy said, as the investor can decide if and when they want to sell or hold them to maturity. When holding shares of a mutual fund, you have outsourced control to the fund manager, who will decide how the portfolio is managed.

E-mail your questions to askbiz@starledger.com.
source: www.nj.com/business

Top 5 Energy Mutual Funds

2010-11-06T06:56:00.000-07:00

Mutual funds investing in energy and natural resources are excellent long term prospects and should be part of all well diversified portfolios. This is borne out by the fact that in the last five years, natural resources funds have outperformed the next closest domestic equity fund category by a huge margin. Most of this success is attributable to the oil and natural gas sectors where fast depleting reserves coupled with rising demand have led to a steady increase in both commodity and stock prices. Energy mutual funds greatly reduce the risk involved in investing in this sector because they hold widely diversified portfolios.

Below we will share with you 5 top rated energy mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all energy funds, then click here.

Fidelity Select Natural Gas (FSNGX) invests heavily in securities of companies involved in the production of natural gas as well as transmission and distribution activities. The fund also purchases securities issued by explorations companies as well as those firms which provide services and equipment for such activities. The energy mutual fund has a ten year annualized return of 6.08%.

The fund manager is James McElligott and he has managed this energy mutual fund since 2005.

Putnam Global Natural Resources A (EBERX) seeks capital growth over the long term. It primarily invests in common stocks of energy and natural resources companies across the world. It focuses on acquiring value stocks and invests in large and mid-cap companies. The energy mutual fund returned 5.39% over the last one year period.

As of September 2010, this energy mutual fund held 57 issues, with 6.18% of its total assets invested in Rio Tinto PLC.

Invesco Energy (FSTEX) invests at least 80% of its assets are used to purchase securities of energy companies. This includes companies which produce or distribute conventional energy, as well as energy conservation and alternative energy companies. This energy mutual fund has a five year annualized return of 3.11%.

The energy mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.16% compared to a category average of 1.68%.

Vanguard Energy (VGENX) seeks long term capital appreciation. The majority of its assets are used to purchase common stocks of companies whose primary activities are energy related. This energy mutual fund has a ten year annualized return of 12.87%.

The fund manager is Karl E. Bandtel and he has managed this energy mutual fund since 2002.

Aberdeen Natural Resources A (GGNAX) invests the majority of its assets in domestic and foreign companies from the natural resources industry. It invests in companies of all sizes, ranging from well-known firms to smaller companies with significant growth potential. The energy mutual fund has a five year annualized return of 4.07%.

The energy mutual fund has a minimum initial investment of $ 1,000 and an expense ratio of 1.56% compared to a category average of 1.56%.

To view the Zacks Rank and past performance of all energy mutual funds, then click here.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/
source: www.zacks.com

Money fund assets fall to $2.8T in latest week

2010-11-06T06:52:00.000-07:00

Total money market mutual fund assets decreased $6.59 billion to $2.8 trillion for the week, the Investment Company Institute said Thursday.

Assets of the nation's retail money market mutual funds fell $1.05 billion to $941.26 billion. Assets of taxable money market funds in the retail category decreased $1.69 billion to $739.21 billion for the week ended Wednesday, the Washington-based mutual fund trade group said. Retail tax-exempt fund assets rose $640 million to $202.04 billion.

Assets of institutional money market funds fell $5.54 billion to $1.859 trillion for the same period. Among institutional funds, taxable money market fund assets fell $5.83 billion to $1.735 trillion; assets of institutional tax-exempt funds increased by $300 million to $124.03 billion.

The seven-day average yield on taxable money market mutual funds in the week ended Tuesday remained at 0.03 percent, the same as the previous week, said Money Fund Report, a service of iMoneyNet Inc. in Westboro, Mass. The 30-day average yield dropped to 0.03 percent from 0.04 percent, according to Money Fund Report.

The seven-day compounded yield also remained flat at 0.03 percent, while the 30-day compounded yield fell to 0.03 percent from 0.04 percent, Money Fund Report said. The average maturity of the portfolios held by money funds remained 47 days.

The online service Bankrate.com said its survey of 100 leading commercial banks, savings and loan associations and savings banks in the nation's 10 largest markets showed the annual percentage yield available on money market accounts was again unchanged from the previous week at 0.19 percent.

The North Palm Beach, Fla.-based unit of Bankrate Inc. said the annual percentage yield available on interest-bearing checking accounts was flat at 0.10 percent.

Bankrate.com said the annual percentage yield on six-month certificates of deposit was 0.32 percent, unchanged from the previous week. Yields on one-year CDs fell to 0.52 percent from 0.53 percent the previous week; slipped to 0.73 percent from 0.74 percent on 2 1/2 year CDs; and declined to 1.55 percent from 1.57 percent on five-year CDs.
source: sify.com

Funds for the nervous investor

2010-11-06T06:44:00.000-07:00

Regrets, you’ll have a few if you blindly follow the conservative, take-no-risk approach to investing that’s so common these days.

The returns paid by savings accounts, money market funds and term deposits range from roughly 3 per cent down to zero. Need more than that to get where you want to go, financially speaking? Then consider the Portfolio Strategy column’s list of 12 mutual funds for frightened investors.

The list was compiled by asking four independent mutual funds analysts to suggest funds for people who are nervous about the stock markets but want higher returns than they’re getting in safe investments. Only two restraints were put on the choices – no money market funds and no bond funds. Those categories are where safe money’s been sitting since the financial crisis.

These funds on our list can certainly lose money, but in all cases they offer a smoother ride than many of their peers. For more information, consult the fund profiles on Globeinvestor.com.

Dan Hallett, director of asset management for HighView Financial Group:

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
CI Signature High Income	1.56	17.7	7.5	4.5	2	-21.5	-18.7

Comments: Mr. Hallett cautioned that this fund isn't for ultra conservative investors because it did lose a fairly substantial amount in 2008. But while the mix of stocks, REITs, corporate and high yield bonds is aggressive by balanced fund standards, it's more conservative than a fund investing fully in stocks. Mr. Hallett also notes that the MER for this fund is one of the lowest in its class.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Mawer Cdn. Balanced RSP	1.01	7.5	7.5	4.1	2	-16.1	-18.7

Comments: This portfolio offers investors a bit of everything – bonds, cash, domestic and foreign stocks – in a single product at fees around 1 per cent per year, which is strikingly low. Mr. Hallett describes Calgary-based Mawer as a great firm that is competent in all investing categories and has a great track record. This is a fund of funds that holds other Mawer funds in its portfolio.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Hartford Global Balanced	2.6	2.75	5.94	n/a	0.78	-11.5	-23.4

Comments: Mr. Hallett based this suggestion on the idea that investors are overly focused on Canada. "The tide will shift more in favour of global investing again…at some point…and so many terrific opportunities exist outside of our borders," he said. About 70 per cent of the portfolio is stocks, so this isn't "a tepid bond fund." This fund began in 2007, so it lacks a long track record. However, lead manager Richard Jenkins is a respected fund industry veteran.

David Paterson, Paterson & Associates:

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
RBC Monthly Income	1.14	8.4	6.5	4.8	2.7	-11.3	-16.2

Comments: Mr. Paterson describes this as a very conservative balanced fund, with a rough 50-50 split between stocks and bonds. Volatility is below average for the Canadian neutral balanced category, and yet returns have consistently come in above average. This fund pays 4.75 cents per unit each month, which works out to a yield of roughly 4.4 per cent. This fund is available only for non-registered accounts.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
BMO Guardian Mthly Dividend	2.17	12.4	6.5	2.3	2.7	-20.5	-16.2

Comments: This fund is a rarity in that it invests heavily in preferred shares, which are primarily vehicles for producing dividend income and offer limited capital gains potential. About 60 per cent of the portfolio is in preferreds, with the rest focused on dividend-paying common shares with high yields. Mr. Paterson noted that while this fund holds no bonds, he expects volatility to be in line with balanced funds.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Fidelity Dividend B	2.04	10.8	8.3	6.5	2.1	-22.7	-26.6

Comments: "This fund will provide investors with more volatility (or a bumpier ride) than my other picks, but I feel it is a good way for conservative investors to gain some exposure to the equity markets," Mr. Paterson said. Holdings are mainly blue-chip Canadian companies such as the big banks and TransCanada Corp. Volatility is below average for Canadian dividend funds and well below average when compared with Canadian equity funds.

David O'Leary, director of fund analysis Morningstar Canada

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Mackenzie Ivy Foreign Equity	2.43	5.4	4.2	3.3	-1.3	-6.7	-30.8

Comments: Mr. O'Leary says this fund can underperform dismally in bull markets, but it holds up remarkably well in bear markets. That was certainly the case in 2008, when it ranked among the top global equity funds by protecting unitholders far better than its peers. This fund holds companies with strong brands and balance sheets, and it uses a buy-and-hold approach that means little portfolio turnover.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
IA Clarington Cdn. Balanced	2.37	9.4	6.4	2.7	2.4	-21.5	-21.3

Comments: Mr. O'Leary's inclusion of this fund is based on the fact that it was taken over in mid-2009 by a firm run by Leigh Pullen, formerly with Mawer Investment Management. Mr. Pullen's firm, QV Investors (stands for Quality and Value) runs another fund similar to this and its worst plunge during the financial crisis was 11 per cent.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Discovery	2.62	5.6	4.2	2	-1.3	-26.3	-30.8

Comments: Mr. O'Leary calls this the quintessential deep-value fund, which means it focuses on truly beaten-down stocks with rebound potential. The managers changed last year, but a team approach to running the fund means a consistent approach will be taken. The portfolio has a weighting of about 16 per cent in cash these days, but in the past it has gone as high as 30- to 40-per-cent cash.

Jeff Tjornehoj, research manager for U.S. and Canada Lipper

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
CI Global Managers	2.39	0.9	4.2	1.1	-1.3	-16.7	-30.8

Comments: Mr. Tjornehoj said this fund "moves a little slower" than other global equity funds, a point that is driven home by its comparatively weak performance in the past year. The compensation for investors is lower volatility. "During the 2008 meltdown, it suffered only half the letdown that afflicted its peers," he said. Oddity: Five of its Top 10 holdings are exchange-traded funds, which are a low-cost competitor to mutual funds.

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Dynamic Small Business	2.69	31.2	20.6	14.7	3.7	-18.1	-41.2

Comments: This fund is in the Canadian small- or mid-cap equity category, which means it holds stocks that are considerably more risky than others on this list. But within its niche, Dynamic Small Business has shown much less volatility than its peers. Check out the 2008 performance -- the loss was less than half the category average of 41.2 per cent (this attests to the risks of the small/mid-cap category).

Fund	MER (%)	One-Yr. Rtrn (%)	Peer Avg (%)	5-yr. Rtrn (%)	Peer Avg (%)	2008 rtrn (%)	Peer Avg (%)
Discovery	2.5	4.8	-1.1	5.1	-0.5	-8.2	-35

Comments: This fund has been holding about 21 per cent of its assets in cash lately, which will provide a cushion in a down market. You can quibble that high cash weightings also drag down returns when the markets are good, but this fund's results over the last 12 months have been much better than average. Like its sister fund, Ivy Foreign Equity, Ivy European stood up comparatively well in 2008.source: ww.theglobeandmail.com

Best Large-Cap Value Funds for the Long Term

2010-11-06T06:40:00.000-07:00

source: money.usnews.com

U.S. News is releasing a series of stories highlighting top-rated mutual funds in various categories. These funds have performed well over the long term, are rated highly among the industry's analysts, and have low minimum investments, making them accessible to all investors—big or small. This is the third piece in a series of stories highlighting 10 categories that make up U.S. News's 100 Best Mutual Funds for the Long Term.
Click here to find out more!

Many large-cap value managers are the epitome of buy-and-hold investors. In this category, you'll find managers who seldom trade and invest with a long time horizon.

There are two types of value investors with one important distinction, says Morningstar analyst Michael Breen. One type invests in high-quality, dividend-paying companies with strong fundamentals that are trading at a cheap price. The other, Breen says, "tend to be a lot more very deep contrarian investors who will buy very troubled companies thinking that the [company is] going to turn it around."

Investors should first consider their risk tolerance before choosing among funds in this category. Out-of-favor companies may take a long time to rebound. Many managers pride themselves on making bets on beaten-down companies before the market recognizes the companies' potential to turn things around. Such funds may not shine during strong market rallies, but the undervalued stocks in their portfolios can provide consistent returns over the long term. Often, these funds invest in sectors like healthcare, consumer staples, and financials (because of the industry's historically high dividend payouts) rather than traditional growth sectors like technology.

Over long periods of time, large-value funds have consistently beaten large-growth funds, Breen says, mostly because investments that generate dividends help you compound capital over time. Another trait to note: "Many of the managers in this category are bottom-up investors, and they believe in concentrated portfolios," Breen says. The funds may invest heavily in a single sector of the market or in a few companies they have strong convictions about, which can make them risky choices.

[See Value and Growth: Why Investors Need Both.]

With that in mind, here are U.S. News's best large-cap value funds for the long term:

Yacktman Fund (symbol YACKX). The managers of this fund run a concentrated portfolio of stocks that generate strong cash flows for a fairly long period of time. At times, when they believe the market is overvalued, they'll hold a decent amount in cash. (Currently, 10 percent of the fund's assets reside in cash.) Two of the fund's top three holdings are soft drink giants Coca-Cola and Pepsi. The fund has returned an annualized 12 percent over the past 10 years. Its annual expenses are 0.93 percent.

Invesco Van Kampen Growth and Income (ACGIX). This fund is currently heavy on financial services companies like JPMorgan Chase and Bank of America. Management tends to gravitate toward out-of-favor companies. At times, that strategy has meant trouble for the fund; its stake in BP and Anadarko Petroleum sank following the oil spill in the Gulf of Mexico. Those two picks have hurt the fund's recent returns, but over the long term, its performance has been steady. Over the past 10 years, the fund has returned 3 percent per year, on average. It charges annual fees of 0.88 percent.

California Investment Equity Income (EQTIX). This fund may take you for a bumpy ride, but it's long-term returns are among the highest in its category. Currently, its holdings are close in line with the S&P 500, which is unusual for the fund. Management will sometimes make big sector bets. Recently, Caterpillar has boosted the fund's returns, while big banking names like JPMorgan and Goldman Sachs have been somewhat of a drag on performance. Management looks for solid, dividend-paying companies to provide current income as well as capital appreciation to its shareholders. The fund has finished among the bottom of its category in several recent years, but over the past 10 years, it has gained an annualized 3 percent. Its annual fees are 0.99 percent.

Top 5 International Mutual Funds

2010-08-17T19:01:00.000-07:00

August 17, 2010 - Financial markets abroad have gradually acquired greater prominence and today they account for more than half of the world’s equity market cap. Investors are now aware of this fact and over time a clear preference for international mutual funds has emerged.

Emerging market mutual funds are of particular interest because of the untapped potential of these countries as well as their growth performance. International mutual funds are the best way to explore these markets since they have the advantages of expert management, diversification and a disciplined approach.

Below we will share with you 5 top rated international mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all international mutual funds, then click here.

Sentinel International Equity A (SWRLX) seeks capital appreciation over the long term. The fund invests the majority of its assets in equity securities from foreign countries. Under normal circumstances it invests on at least 10 countries at any given point in time. Up to 40% of its assets may be invested in one country. Though it focuses on purchasing securities form developed markets, up to 20% of its assets may be invested in emerging economies. The international mutual fund returned 11.96% in the last one year period.

The international mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.60% compared to a category average of 1.40%.

Laudus International MarketMasters (SWOIX) invests a large proportion of its assets in equity securities of companies located outside the US. The fund invests in companies regardless of their market capitalization. It focuses on securities from mature economies but may also invest in developing markets. The international mutual fund has a five year annualized return of 4.5%.

The Fund Manager is Jeffrey Mortimer and he has managed this international mutual fund since 1997.

Fidelity International Discovery (FIGRX) seeks capital appreciation. The fund seeks to achieve its investment objectives be investing in securities of international issuers. It focuses on purchasing common stock and allocates funds across economies keeping in mind the size of their markets relative to the size of the entire global market. The international mutual fund returned 6.5% in the last one year period.

The international mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.07% compared to a category average of 1.40.

Scout International (UMBWX) invests the majority of its assets in prominent firms located abroad or those whose principal operations are conducted outside the US. Not more than 25% of the fund’s assets are invested in any one country. It focuses on purchasing equity securities, but may invest up to 20% of its assets in fixed-income and money market securities. The international mutual fund has a ten year annualized return of 3.32%.

As of June 2010, this international mutual fund held 87 issues, with 2.12% of its total assets invested in United Overseas Bank Ltd.

Artio International Equity A (BJBIX) seeks capital growth over the long term. The fund primarily invests in equity securities issued by foreign companies from various market sectors. At least 65% of its assets are invested in not less than three foreign economies. Up to 35% of its assets may be invested in developing countries. The international mutual fund returned 7.59% in the last one year period.

The Mutual Fund Manager is Rudolph-Riad Younes and he has managed this international mutual fund since 1995.

To view the Zacks Rank and past performance of all international mutual funds, then click here.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/source: www.zacks.com

Query Corner: Mutual Fund

2010-08-17T18:57:00.000-07:00

Mr Vicky Mehta, senior research analyst, MorningStar India, takes you through the labyrinth of MF investments in this column.

I had invested in 1,800 units of GIC Balance Fund under Dividend Plan in 1992. Later, Canara Bank, which is now operating as Canara Robeco, took over. On January 18, 2010, it declared a 70% dividend, but refused to pay me saying that these were held under investment plan since inception. Can a fund change the mode of plan (from dividend to investment) without the holder’s consent? Please advise.
Ratnapriya Ghosh

When GIC Balance Fund migrated to the erstwhile Canbank Mutual Fund, the investors were required to choose between growth, dividend payout or dividend reinvestment plans. In its communication, the fund house had stated that if investors fail to make a choice, the growth plan would be treated as the default choice and such investments would be classified under the growth plan. Perhaps, in your case too, the failure to make a choice may have resulted in investments being classified under the growth plan.

I am a 64-year-old senior citizen drawing a monthly pension of Rs 17,700. I have invested in Reliance Equity Opportunities Fund, Reliance Vision Fund, HDFC Monthly Income Plan, HDFC Prudence, apart from post office monthly income scheme and senior citizens’ savings scheme. Rentals also contribute to my income stream. Please review my portfolio.
SC Jain

Your portfolio has a mix of assured return schemes and market-linked investment avenues (mutual funds and stocks) which is certainly positive. If you are a risk-taking investor and can take on the risk associated with market-linked investments, the portfolio seems fine. If not, you may want to consider realigning the portfolio and make a higher allocation to assured return schemes.

I have investments in four mutual funds — Reliance Regular Savings, SBI Magna Contra, UTI Opportunities and UTI Dividend Yield — through SIP route. Since these investments are over a year old, I plan to sell them and switch to other funds. Please advise.
Melwyn D’Souza

In case of investments made via the SIP route, the exit load is computed from the date of each instalment and not the date when the first instalment was invested. In terms of performance, Reliance Regular Savings–Equity and UTI Dividend Yield enjoy a 5-star rating from Morningstar, while Magnum Contra and UTI Opportunities have a four-star rating. These ratings indicate that the funds have delivered an impressive showing on the risk-adjusted return front vis-à-vis peers. As regards thematic funds like infrastructure funds, it isn’t uncommon for them to be at their best in time periods, when the underlying theme hits a purple patch.
source: www.blogger.com

India Digest: Survival of Many Fund Houses in Danger

2010-08-01T21:02:00.000-07:00

Here is a roundup of news from Indian newspapers, news wires and Web sites on Monday, August 2, 2010. The Wall Street Journal has not verified these stories and does not vouch for their accuracy.

Survival of Many Fund Houses in Danger:

First, there was outrage. Then, there were outflows. A year after the Securities and Exchange Board of India (Sebi) decided to ban entry load, the mutual fund industry’s equity assets are down by Rs 8,000 crore (net outflows), according to data from the Association of Mutual Funds in India (Amfi). (Source: Business Standard)

Eight Die as Valley Stir Worsens:

Even as the embattled Omar Abdullah government tried to grapple with worsening street protests, four people were killed in a blast at a police camp in Khrew in Pulwama district, with at least 35 others injured, after a fire triggered by protesters reached the armoury where explosives recovered from terrorists were stored. (Source: The Times of India)

Games OC Has ‘Proof’, UK Mission ‘No Recollection’:

The Indian High Commission in London has been left trawling through a vast cluster of emails after its junior clerk Raju Sebastian said he had “no recollection” of having recommended a British firm that received nearly a quarter of a million pounds from the Commonwealth Games Organising Committee (OC). (Source: Hindustan Times)

Haryana IAS Officers Become Members of Corporations They Head, Buy Flats Cheap:

Several IAS officers picked up apartments at concessional rates in prime locations in Haryana by becoming members of the employees welfare associations of the very corporations they were heading while on deputation.(Source: The Indian Express)

Centre to Expand PDS Cover:

In a move that will have a major long-term implication, the Centre plans to expand the coverage of Below Poverty Line (BPL) population under the public distribution system (PDS) to 8.07 crore (or 80.7 million) from the current 6.52 crore based on the acceptance of the Tendulkar Committee’s poverty projections for 2011 by the Planning Commission. (Source: The Hindu)

Dissenting Former DoT Secretary to Depose Before PAC:

The deposition of DS Mathur, former telecom secretary, who even refused to sign any files on the matter till his retirement on December 31, 2007, could come as an embarrassment for Raja who is drawing flak for allegedly causing huge losses to the exchequer by giving out the valuable licences for a song to eight new players in January 2008.(Source: The Financial Express)

Bihar Sees Reverse Brain Drain:

The unprecedented reverse brain drain to Bihar is being led by people who never imagined they would return. Prakash, 42, has been in Patna for two years now, but on the day he had left the city in the early 1990s for Australia, he hadn’t at least thought so.(Source: Mint)

source: blogs.wsj.com

Comparing ETFs and Index Funds

2010-08-01T20:58:00.000-07:00

AUGUST 2, 2010

The debate over active versus passive funds has gotten a lot of attention. But what should investors do when it comes to passive versus passive?

More and more options are becoming available to investors who want a fund that tracks a particular market benchmark, as companies expand offerings of index mutual funds and exchange-traded funds. In fact, indexing giant Vanguard Group recently announced plans to add an ETF share class for its flagship index fund, Vanguard 500 Index. It's also launching 19 new index portfolios with both mutual-fund and ETF shares.

So how should investors decide between traditional funds and ETFs? There are a few important points to keep in mind. Many ETFs are cheaper than traditional funds, thanks to the advent of commission-free trading—and a recent price war among providers. ETFs also offer some important tax advantages.

But there are renewed concerns about ETFs after the May "flash crash" saw the prices of some ETFs fall far more than the value of their underlying holdings. First-time ETF investors should also be sure they understand that ETFs trade throughout the day instead of just once, like mutual funds—and that can carry some risks.

As for performance, the two types of funds haven't diverged greatly. Index mutual funds that track the Standard & Poor's 500-stock index are down an average 7.30% for the three-year period through July 26, while ETFs tracking the same index are down 6.97%, according to Morningstar Inc. Similarly, index funds tracking the Russell 2000 small-stock index are down 5.01% while ETFs are down 4.21%, and index funds tracking the MSCI EAFE foreign-stock index are down 10.54%, while ETFs are down 10.02%.

Here's a closer look at the big differences between index ETFs and traditional index funds.

Expenses

When deciding between ETFs and funds, "the first consideration should be about costs," says Paul Justice, director of ETF research for North America at Morningstar. "The fee is going to alter your returns over longer periods of time to a meaningful degree."

Here, ETFs almost always win: The average expense ratio for all ETFs in the U.S. is 0.54%, compared with the 0.99% average for all conventional index funds in the U.S., according to Morningstar. Consider one of the largest funds that tracks the S&P 500 and a comparable ETF. Vanguard 500 has an expense ratio of 0.18% for retail shares, compared with a 0.09% expense ratio for the SPDR S&P 500 ETF.

ETFs didn't always have such a big price advantage. In fact, the trading fees investors paid for buying and selling ETFs used to be one of the big marks against them. But now "there's an emergent price war in ETFs," says Matt Hougan, editor of IndexUniverse.com.

It began last November, when Charles Schwab Corp. entered the ETF market with four funds that featured no commissions for Schwab investors who trade online at Schwab. Currently, Schwab offers all eight of its stock ETFs commission-free for those investors. Three Schwab bond ETFs will be available for trading later this week, also without commissions for Schwab account holders trading online.

Other firms followed earlier this year with no-commission deals of their own. Vanguard began to offer all of its ETF share classes commission-free for its brokerage clients, and the new Vanguard S&P 500 ETF will have a 0.06% expense ratio. Fidelity Investments teamed up with BlackRock Inc.'s iShares unit to offer 25 iShares ETFs commission-free to Fidelity retail clients, in addition to its commission-free Fidelity Nasdaq Composite Index ETF.

Trading Flexibility

Another big difference between ETFs and traditional funds is how they trade. ETFs can be bought and sold throughout the trading day, while traditional funds are priced and traded only once a day. The flexibility of ETFs may suit investors interested in short-term trading or who want to liquidate a holding quickly. But that flexibility adds an element of uncertainty and complexity for investors: Prices are set by buyers and sellers in the marketplace, and they sometimes deviate from the ETF's net asset value, or the value of its holdings.

With a mutual fund, by contrast, "you're going to get the calculated NAV at the end of the day when you buy or sell, and you remove that premium and discount risk," says Mr. Hougan of IndexUniverse.com.

The result, says Morningstar's Mr. Justice, is that "trading an ETF is slightly more complicated than a mutual fund." For instance, experienced ETF traders often use limit orders, which means a trade will be executed only within a specified price range. Some ETF traders also tend to avoid buying and selling at the very beginning and the end of the trading day, when prices can be more volatile.

The market prices of large, widely traded ETFs tend to stick close to net asset value. Divergences are more common when the securities that ETFs hold are less heavily traded, such as with many corporate bonds.

Still, Fran Kinniry, a principal in Vanguard's investment strategy group, says over the long run, premiums and discounts "tend to wash themselves out," allaying some of the concerns for investors who plan to buy and hold ETFs for years.

Mr. Kinniry thinks a bigger distinction between index mutual funds and ETFs is where they're bought and sold. Investors who aren't used to buying from brokerages might prefer to stick with traditional index mutual funds.

Tax Efficiency

Another plus for ETFs: These funds are "more tax-fair and more tax-efficient" than even their index mutual-fund counterparts, says Mr. Hougan.

When ordinary investors decide to dispose of an ETF investment, they sell the shares to others rather than redeeming them with the fund. That eliminates a tax issue that mutual funds face: When a fund needs to sell securities to meet redemption requests, it must distribute the resulting net taxable gains to all the fund's investors.

The result: ETF investors get fewer or no distributions of gains realized by the funds. For example, Morningstar data show that none of the ETFs that track the S&P 500 or the Russell 2000 had a capital-gains distribution in 2009. In contrast, the average distribution for conventional U.S. index mutual funds that track the S&P 500 was 0.36% of net asset value, while index funds that track the Russell 2000 had an average distribution of 0.25%. "Almost the only way to generate a capital gain in an ETF is if there's an index change and the fund has to sell securities to meet that index change," Mr. Hougan says.

In essence, ETFs give investors control over their own tax issues, says Noel Archard, managing director at iShares. "With an ETF, you're truly picking up your own tab and doing it at your own rate" and aren't affected by the actions of other investors in the fund.

Ms. Prior is a staff reporter for The Wall Street Journal in New York. She can be reached at anna.prior@wsj.com.
source: online.wsj.com

Mutual Fund Rules Witness Overhaul

2010-08-01T20:55:00.000-07:00

Written by Pauline Beart on 01 Aug 2010

Those jittery about paying the effectiveness of the fee charged on investment in mutual funds should exhale a sigh of relief.

The so called 12b-1 fee charged under them is deemed to be vexing by many fund investors.

This fee can include the costs of compensation for brokers, advertising-related costs, in addition to service costs like mailing quarterly fund disclosures.

As a beginning, Securities and Exchange Commission seeks to eradicate its preposterous name that it bears. However, if the official approval is given following a 90-day public comment period, the rules will introduce a radical transformation in the way investors purchase funds.

The vital changes highlighted under the overhaul is that the sales fee that long term investors are obliged to shell out would be done away with. Following the approval, they can resort to pay more than if they had already paid for upfront sales charge or “load,’’ when they entered the fund.

In addition, the brokers would be able to charge fee as per his wish. Hence, the competition is likely to rise as a result.

Besides, fund disclosures will be made mandatory in a view to discern the difference between what investors pay to brokers in name of ongoing sales charges, and what they are charged for marketing and services.
source: frenchtribune.com

Mutual Funds Gained Assets, Thanks to Bonds

2010-08-01T20:53:00.000-07:00

By KEVIN KINGSBURY And JOHN KELL

Money returned to long-term U.S. mutual funds last month after investors pulled holdings out in May in the wake of the stock market's "flash crash," the Investment Company Institute said in data released Thursday.

In stock funds, more money continued to be pulled than was added, continuing a trend in which investors haven't consistently added to stock funds even since the market bottomed in March 2009. Outflows, or selling, dropped to $5.41 billion in June from $24.76 billion a month earlier as money leaving domestic funds last month more than offset net inflows to those that primarily invest overseas.

Instead, the bulk of cash going to mutual funds since then has been bond funds. In June, they received a net $20.74 billion, said the industry group, up from $14.54 billion in May. They rose 58% for taxable funds to $18.79 billion but dropped 27% for municipal-bond funds.

Money continues to flow from money-market funds as interest rates for such instruments remain near zero. Outflows rose to $24.15 billion from $22.16 billion, putting the first half's total at $509.27 billion, said the ICI. That compares with outflows of $189.37 billion in the first half of 2009.

Meanwhile, for the latest week, assets in money-market funds jumped $3.57 billion as inflows into institutional funds more than offset a decrease in retail funds, according to the ICI.

For the week ended Wednesday, total fund assets grew to $2.802 trillion, according to the ICI. Earlier this year, the total funds tracked by the ICI dropped below $3 trillion for the first time since October 2007.

Retail funds decreased $2.37 billion, to $980.36 billion in the latest week. Taxable government funds saw $990 million of inflows, putting assets at $173.58 billion, while nongovernment funds had $1.86 billion of outflows, lowering the money in them to $597.07 billion. Tax-exempt funds declined $1.5 billion to $209.71 billion.

Assets in the institutional class were up $5.94 billion to $1.821 trillion. Taxable government funds had $10 million of outflows, putting asset levels at $662.88 billion. Nongovernment funds had inflows of $7.56 billion, moving their assets up to $1.025 trillion. Tax-exempt funds had outflows of $1.62 billion, falling to $133.27 billion.

Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com and John Kell at john.kell@dowjones.com
source: online.wsj.com

SEC's proposed mutual fund sales fee reforms

2010-07-29T20:52:00.000-07:00

29 July, 2010 - The Securities and Exchange Commission wants to overhaul the ongoing sales charges that mutual fund investors pay, called 12b-1 fees. The fees are part of the overall costs investors pay, reflected in a fund's expense ratio — its cost of doing business, expressed as a percentage of assets.

The 12b-1 fees are separate from any one-time sales charge, known as a load, that investors may pay up front when buying a fund, or after selling their shares. Funds can use 12b-1 fees for a variety of purposes, including paying commissions to brokers who sell funds; fund marketing; and providing investment advice and mailing fund disclosures to shareholders.

The five SEC commissioners on July 21 voted unanimously in favor of 12b-1 changes recommended by the agency's staff. After a 90-day public comment period, the SEC will vote on the final changes.

Here's a look at the key changes in the proposal, which runs 278 pages:

—Broker competition: Brokers would be allowed to compete on pricing, rather than being stuck with the commission that the fund company sets for them. Brokers could offer varying levels of service, geared toward fee levels.

—Fee disclosure: Funds would have to clearly show investors the ongoing sales charges they may be paying, and separate them from fees covering marketing and shareholder services. Disclosures must include totals for "ongoing sales charges" and any "marketing and service" fees.

—Fee caps: Marketing and service fees would be capped at 0.25 percent of the fund's assets per year. Anything above that would be considered a sales charge. Ongoing sales charges would be capped so that the total paid over several years couldn't exceed the amount the investor could have paid had they chosen to pay upfront. For example, a fund that charges a 4 percent sales load could deduct no more than 4 percent over time from an investor. Under current rules, long-term investors who buy class C shares can sometimes end up paying more, essentially subsidizing short-term investors.

source: www.cnbc.com

Money fund assets rose by $3.57 billion to $2.802 trillion in latest week

2010-07-29T20:48:00.000-07:00

29 July, 2010 - NEW YORK (AP) - Total money market mutual fund assets rose by $3.57 billion to $2.802 trillion for the week, the Investment Company Institute said Thursday.

Assets of the nation's retail money market mutual funds fell by $2.37 billion in the latest week to $980.36 billion.

Assets of taxable money market funds in the retail category fell by $870 million to $770.65 billion for the week ended Wednesday, the Washington-based mutual fund trade group said. Retail tax-exempt fund assets fell by $1.5 billion to $209.71 billion.

Assets of institutional money market funds rose by $5.94 billion to $1.821 trillion for the same period. Among institutional funds, taxable money market fund assets rose by $7.55 billion to $1.688 trillion; assets of institutional tax-exempt funds fell by $1.62 billion to $133.27 billion.

The seven-day average yield on money market mutual funds was unchanged in the week ended Tuesday at 0.04 percent, said Money Fund Report, a service of iMoneyNet Inc. in Westboro, Mass. The 30-day average yield was also flat at 0.04 percent, according to Money Fund Report.

The seven-day compounded yield and the 30-day compounded yield were unchanged from the previous week at 0.04 percent, Money Fund Report said.

The average maturity of the portfolios held by money funds was 39 days, up from 38 days, said Money Fund Report.

The online service Bankrate.com said its survey of 100 leading commercial banks, savings and loan associations and savings banks in the nation's 10 largest markets showed the annual percentage yield available on money market accounts was 0.21 percent as of Wednesday, unchanged from the week earlier.

The North Palm Beach, Fla.-based unit of Bankrate Inc. said the annual percentage yield available on interest-bearing checking accounts was flat at 0.13 percent.

Bankrate.com said the annual percentage yield was 0.38 percent on six-month certificates of deposit, down from 0.39 percent the previous week. Yields were 0.67 percent on 1-year CDs, down from 0.68 percent; 1.06 percent on 2 1/2-year CDs, down from 1.07 percent; and 1.99 percent on 5-year CDs, up from 1.98 percent.

source: www.canadianbusiness.com

ICI: Long-Term Mutual Funds Post $6.91 Bln Of Inflows

2010-07-29T20:45:00.000-07:00

JULY 28, 2010 - DOW JONES NEWSWIRES

Long-term mutual funds had an estimated $6.91 billion of inflows in the latest week due to strength in bond and hybrid funds, which again more than offset outflows from equity funds, according to the Investment Company Institute.

Bond funds have thrived, as they typically do in a lower-interest-rate environment, while equity funds have failed to consistently attract new investment for more than a year despite 2009's sharp rally.

For the week ended July 21, ICI reported that equity funds had outflows of $1.32 billion, compared to the $3.19 billion of outflows a week earlier. U.S. equities had $1.53 billion pulled from them while $204 million was added to foreign funds.

At the same time, bond funds took in $7.86 billion, up from $6.14 billion the previous week, said ICI. Taxable funds had inflows of $6.87 billion and municipal ones added $992 million.

Investors also put $371 million into hybrid funds, compared with prior-week inflows of $430 million. Such funds can invest in both stocks and fixed-income assets.

source: online.wsj.com

How a One-Man Fund Beat All the Rest

2010-07-29T20:27:00.000-07:00

You've probably never heard the name Bernard Klawans. For four decades, the 89-year-old former aerospace engineer has managed a mutual fund single-handedly. Klawans has never had any formal training in money management or finance, yet he has been able to outperform some of the greatest minds in the fund business. The aptly named Valley Forge fund has weathered some of the worst market climates since its launch in 1971.
Click here to find out more!

Over the past 10 years, Valley Forge has returned almost 6 percent on an annualized basis. That lands it in the top 5 percent of all large-cap value funds during that time period. The S&P 500, by comparison, has lost almost 1 percent.

[See U.S. News's list of The 100 Best Mutual Funds for the Long Term, and use our Mutual Fund Score to find the best investments for you.]

"Valley Forge fund has made the pros look like chimps over the last decade," says John Rekenthaler, Morningstar's vice president of research. "It's a useful reminder that investment insights don't always come with one type of resume. His is an unconventional resume, but he's certainly beaten almost all of the Harvard and Stanford MBAs over the last decade."

Klawans doesn't believe formal training is necessary to become a mutual fund manager. In fact, he's helped others start funds—32 to be exact. "I'm just a good businessman, that's all," he says. "I've got a lot of discipline."

While he was working at General Electric in the '70s and early '80s, Klawans applied to become a registered investment advisor. He says he was only the 12th person ever to do so in the United States. To get started, he put $25,000 of his own money into Valley Forge. That amount has grown to about $1.6 million, all of which is still invested in the fund, he says.

Klawans' investing style is quite conservative. He says he only invests in well-known names, such as his former employer GE. If he believes the market is headed south, he's not afraid to pull money out. At times, Klawans will move upwards of 50 percent of the fund's assets to cash. When the financial crisis hit in 2008, he virtually abandoned the stock market. "The market stunk, so I got to 64 percent in cash," he says. "I lost a couple of shareholders that said, 'You're not doing anything,' and I said, 'It's because the market stinks.' While the average large-cap value fund and the S&P 500 index each plummeted about 37 percent that year, the Valley Forge fund only lost about 20 percent.

Klawans says his stock-selection process is simple. "If you buy them low and sell them high, you make money," he says. "I'm pretty conservative, so I only deal with the big stocks." Currently, the fund holds 28 stocks, according to Morningstar. The rest of the fund's assets (about 21 percent) are invested in cash. About a quarter of Valley Forge's assets are in the consumer goods sector, in companies like Kimberly-Clark and Coca-Cola. The fund's largest holding is 3M.

Valley Forge's assets are approaching $15 million (the highest ever), according to Klawans. In the past, he didn't do any advertising for the fund. "It was a play-toy for me," he says. Last year, he hired some outside help to aid in marketing the fund, but he still makes all the buy-and-sell calls himself. He estimates that the fund is now seeing inflows of about $500,000 per month.

In the '70s and '80s, says Rekenthaler, lots of one-man shops sprouted up in the mutual fund industry because average investors wanted to manage their own money. (It was also a lot cheaper to get started back then.) "Most of these other funds, either the performance was poor and they got tired of running the fund and they merged it out of existence, or the guy who founded it passed on," he says.

Klawans' investing style worked well during the last decade. It paid to be conservative in the 2000s because the returns of the broader stock market were low over that 10-year period. Klawans sticks to well-known, blue-chip companies, and he stays away from some of the more growth-powered names that can be found in sectors like technology. "He looked really old-fashioned in the '90s with huge cash positions and no technology and got left far behind," Rekenthaler says. "The last decade has been something of a redemption for him."

"It's a very grounded fund," Rekenthaler says. "Grounded works both ways. ... When everything is bouncing around, you want to be grounded. On the other hand, it doesn't fly when others fly."

source: money.usnews.com

Understanding Mutual Funds And ETFs

2008-02-29T01:56:00.000-08:00

Author: Warren Wong

While we all wish we could be Warren Buffet, the truth is that most investors are best served just parking their money in a mutual fund or ETF. What is the difference between these two types of investment options and which one is for you?

Both mutual funds and ETFs allow the investor to achieve diversification. Each invests in a basket of stocks, so the investor generally does not have to worry that one individual stock will radically alter his or her returns. Both also give the investor the choice of investing in a certain sector, if he thinks a sector will perform well. For example, there are mutual funds and ETFs that focus just on technology, and there are also broader mutual funds and ETFs that focus on the market as a whole (if you want maximum diversification).

The key difference between mutual funds and ETFs are that mutual funds are actively managed, whereas ETFs are passively managed. What does this mean? Basically, mutual funds have a manager that chooses which individual stocks to buy and sell. He will actively choose generally 50-300 stocks in which to invest. In contrast, an ETF will just invest in the stocks that correspond to an index.

For example, the ETF Diamonds (DIA) seeks to track the Dow Jones index. The ETF's performance will almost exactly mirror how well the Dow Jones index does. So if the Dow Jones goes up 9% in a year, DIA will go up about 9% as well. In contrast, a blue chip mutual fund will also invest in blue chip stocks, like the ones that make up the Dow Jones index, though it may choose to invest in only some of the stocks in the Dow Jones as well as other blue chip stocks that are not in the Dow Jones. Thus, while the Dow Jones may go up 9% in a year, a blue chip mutual fund could have a vastly different return. It might lose 2% or it might gain 15%; it just depends on the luck and the skill of the mutual fund manager.

As you can see, the key difference is how they are managed. But which one is better? Well, it depends. Since there are more decisions and more effort involved in a mutual fund, these charge higher fees than ETFs. These fees may be worth it though if the mutual fund can outperform its index peers. If the mutual fund has returns similar to an index or worse, than the ETF will be better.

Investing in ETFs are a little easier than a mutual fund. As you can see, with an ETF, you are at least guaranteed to meet the index. With a mutual fund, you could do better or you could do much worse. One tip, more than any other, is to make sure you do not pay too high of expense fees with a mutual fund. If your mutual fund is ripping you off, you certainly will underperform the market!

Article Tags: Stocks, Stock Market, Mutual Fund, Stock Investing, Etf

Article Source: http://www.articlesbase.com/

Investing in Mutual Funds

2008-02-24T06:56:00.000-08:00

Source: http://financialwww.com/

Because of the high risks associated with investing in the stock market, many investors are looking for a way of investing their money in a lower risk form although one that still rewards you with pretty good returns over time.

Quite simply, a mutual fund is a way of sharing the risk of your investment with a group of other people. Your resources are pooled together, and put into the hands of a fund manager who will invest on your behalf to get the best returns for you.

There are many different flavours of mutual funds to choose from, with different risks attached to them, and you can choose the best one for your aims. Some invest in higher risk stocks with the aim of making quick returns, while others will stick to more stable industries, where the gains are made steadily over a longer period of time.

Many funds will invest in non-market schemes too, including property. There are options to choose ethical investment, and investment in environmentally sound companies, so whatever your personal taste, you are sure to be able to find a fund to suit you and your needs.

Instead of investing directly in the stocks, you buy into the fund, and become a shareholder in it. The fund manager then controls how the investment is spread across the markets that

When compared to direct investment in stocks and shares, investment in a mutual fund is a cost effective and simple option. Rather than having to pay close attention to the day to day price of a particular stock, and change your strategy constantly to get the most out of your stake, the fund manager will spread the value of the fund over a larger area of the markets, and make decisions on your behalf.

This diversification across a spectrum of investments will allow him to substantially lower the risk, and thanks to the expertise of your fund manager, you can still do very well in both the long and short term

In summary, investing in a mutual fund is a way of sharing the risks associated with investment in the markets. It offers a method of hands off diversification that is managed by an expert, who controls where the money goes. The portfolio of the fund will be monitored and controlled by someone who know the market, and is keen to make a good return on your part. It offers a way of increasing the rewards that you might expect from many investment schemes, whilst also reducing the risk of direct investment in volatile shares.

Advantages of Mutual Funds

2008-02-23T06:59:00.000-08:00

Source: http://financialwww.com/

A mutual fund is also known as an open-end fund and is an investment company that spreads its money across a diversified portfolio of securities- including stocks, bonds or money market instruments.

Shareholders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund.

Advantages of Investing in Mutual Funds

1. Professional Management
2. Liquidity
3. Explicit investment goals
4. Simple reinvestment programs
5. Investment diversification.

Disadvantages of Investing in Mutual Funds

1. Mutual funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.

2. Many funds charge hefty fees, leading to lower overall returns.

3. Overtime, statistics reveal that most actively managed funds tend to under perform their benchmark averages.

Mutual fund investors make money either by receiving dividends and interest from their investment, or by the rise n value of the securities. Dividends interest and profits from the sale of any securities (capital gains) are passed on to the shareholders in the form of distributions. And shareholders generally are allowed to sell (redeem) their shares at any time for the closing market price of the fund on that day.

Reasons to Invest in Mutual Funds:

There are various reasons for the investors to choose mutual funds over other investments such as bonds and stocks.
Diversity can both increase and decrease your potential returns and decrease your overall risk. Mutual funds allow an investor to spread out his or her money across a few as a handful to as many as several thousand companies at one time.

Funds can be beneficial for small investors who would be forced to pay enormous transaction fees if they bought the securities individually and for people who don't have time to research their own investments or who don't trust their own investment expertise.
Mutual funds are not necessarily low cost investments. Many of them charge one time "load fees" to new purchasers.

Types of Mutual Funds:

1. Closed End Mutual Funds:
These funds issue a fixed number of shares to the investing public and usually trade on the major exchanges just like corporate stocks.

2. Open End Mutual Funds:
These funds stand ready to issue and redeem shares on a continuous basis. Shareholders buy the shares at the net asset value and can redeem them at the current market price.

3. Load Funds:
Load funds refer to sales charge paid by an investor who purchases shares in a mutual fund. When sales charge is imposed at the time of purchase, it is known as a front-end load. Back end loads represent charges that are assessed when the investor sells the fund.

4. No Load Funds:
A No Load Fund is sold without a sales charge.

Find out about the tax benefits of offshore funds

2008-02-22T07:05:00.000-08:00

Source: http://financialwww.com/

An offshore fund is a collective investment fund domiciled in an Offshore Financial Center. These funds have been in existence since the 1960's, and so named because they were established originally in the island tax havens of the Caribbean and the English Channel. The term 'Offshore' has since come to mean any jurisdiction, wherever geographically located, which is advantageously different from one's own domestic financial environment.

Advantages

The advantages take a number of forms: a tax free, or 'tax-lite' regime, which reduces the costs on the fund making increased performance achievable, and a less restrictive regulatory environment. Assets can be held in confidence, and the timing of tax payments, and mitigation of the rate at which they are levied can be managed by investing offshore.

Offshore funds offer eligible investors significant tax benefits compared to many high tax jurisdictions such as the United States and the European Union. However, where funds are repatriated to high tax jurisdictions, they are usually taxed at normal rates as foreign arising income.

Many of these tax-haven locations are considered investor friendly and are internationally regarded as financially secure.

1. Confidentiality While conceding the need for greater degrees of co-operation with onshore authorities, the offshore centers' tradition of protecting investors' privacy still persists. If they are implementing measures necessary to maintain a reputation for profit, on money laundering for example, and if they are co-operative when there is evidence of criminal activity, they will nevertheless actively resist any attempts at 'fishing expeditions on the part of onshore tax authorities.

2. Returns and Volatility In addition to operating in a benign tax environment, offshore funds have the opportunity to further increase their returns through exposure to a wider range of asset classes. It is an accepted principle that diversity can better balance an investor's portfolio and reduces its volatility. By spreading investment around different financial centers, not only are diversity increased, but exposure to different market conditions and investment styles are brought into the mix as well.

Although most offshore jurisdictions permit funds to obtain licenses to operate as public funds, the onerous regulatory requirements associated with such licenses usually means that only a small minority of offshore funds is available for subscription by the general public. These funds are subject to formal constitutions, and operated and monitored in compliance with the rules of the local regulatory regime.

While shares in many offshore funds are available by direct application to the managers, the decision to invest in them is likely to be made within the context of broader financial planning. This, plus the desirability of expert guidance, makes an approach through an appropriate financial advisor highly to be recommended.

Different kind of investment funds explained

2008-02-21T07:10:00.000-08:00

Source: http://financialwww.com/

Investment fund is the investment of money for profit. An investment fund is a financial investment vehicle, which is aimed at private investors - little or large-or institutional investors-insurance companies, banks - and offers the following five key advantages over direct investment in shares, bonds and property:

1. Risk is spread and hence reduced.
2. Funds allow you to tap into professional, expert and full time investment management expertise.
3. Funds are cost effective.
4. Funds offer access to markets that may otherwise be closed or too technical for retail/individual investors.
5. Funds benefit from institutional safety, which means they are heavily regulated and supervised.

The benefits of investment funds, where individuals from all walks of life pool their savings together, can be summed up as offering everybody - from professional or institutional investors to people with limited time, or limited investment skills or modest means - access to investment returns otherwise only available to more sophisticated investors, who are able to buy their own professional portfolio management advice.

Investment funds generally entail less risk than direct holdings of securities, and offer economies of scale. It is a firm that invests the pooled funds of retail investors for a fee.
Information on the product you, as an investor, are contemplating buying is crucial.
Usually, all vital information must be included in an investment fund's prospectus. However, prospectuses have become increasingly complex and difficult to understand, thus discouraging investors from reading them.

Investment funds are suitable for anyone who:
1. Is planning to invest in the capital markets but does not want the risks or costs associated with direct investment in equities or bonds.
2. Already has enough money to cover their everyday spending needs and has some spare cash.
3. Can accept possible temporary falls in the value of their investment.

Investment funds should be considered as a long-term savings product. Investments should be held for at least three to five years, preferably longer. In fact, the longer the time scale, the greater the potential to make money grow.

Investment funds can be classified according to their investment objectives.

1. Money Market Funds
Money market funds invest a sizeable portion of the fund's portfolio in short-term bonds and/or money market instruments (such as certificates of deposit, commercial paper, treasury bills,).

2. Bond Funds
Bond funds invest in fixed interest rate securities as a sizeable portion of the fund's portfolio. These funds generally have a global average maturity of more than one year and its investments can consist of different instruments with very different quality ratings.

3. Equity Funds
Equity funds invest in the stock market at a significant portion of the fund's portfolio. These funds are frequently also called stock funds.

4. Balanced Funds
Balanced funds spread their portfolio over the three main classes described above.

Saving With a SEP IRA Retirement Fund

2008-02-19T07:16:00.000-08:00

Source: http://financialwww.com/

When planning for retirement, one option for some people is the SEP IRA. The SEP IRA stands for simplified Employee Pension Individual Retirement Account. This is a special type a retirement plan designed for small business and the self-employed. It was designed by the government to be a simple and easy retirement plan to set up and administer. Is not merely as complicated and has far fewer rules that retirement plans like the Keogh plan or a 401(k) plan. For a small business, and players can't match the contributions other employees funds by as much as 25%. Self-employed people haven't even greater advantage. They can't contribute a much greater amount. It is based on the net profit of the business.

Simpler Rules For The Sep IRA

Since the rules governing the SEP IRA are much less stringent, small-business owners can establish simpler requirements that standard IRS regulations is needed. The eligibility requirements established by the Internal Revenue Service for an employee to contribute to an IRA must be at least 21 years of age, worked for the employer for a least three of the past five years, and have earned a minimum of $450 in wages. The rules for withdrawals are quite simple as well. An employee, once he or she reaches age 70 1/2 should begin to withdraw from other IRA account.

Flexibility For Employer Contributions

Unlike other IRA accounts, there are no set contribution obligations. What this means is that an employer can change the amount and frequency of contributions to the plan based on the businesses profitability for each year. This makes the SEP IRA a better choice for the small-business. During startup years, profits may below, the employer can set up a SEP IRA plan with a smaller employer match. As the business and profits growth, take it increase their contributions. Is the business hits hard times, they can't reduce the amount of contributions for a year or two until the outlook gets better.

Enrolling In A Sep IRA

Unlike other IRA's, the enrollment forms for a simple IRA are fairly easy to fill out. It is a simple two-page form. All the employee must do is to fill out an investment application provided by the Company that will hold the investment funds. The SEP IRA does not require any reporting to the IRS on annual returns. This makes it easy for a small business to administer the SEP IRA. With only a two-page form to fill out, employees are more apt to enroll it a SEP IRA.

Choices In Investments

Most employers choose a large mutual fund company to fund their employees SEP IRA's. This gives the employee many choices in how to invest their money. This makes it easy for the employee. They can choose to divide their contributions among several different mutual funds. For example they may contribute part of their earnings to a relatively safe bond fund, while at the same time, contributing part of their earnings to a riskier small-cap stock fund. These choices are left up to teach individual employee. The employer does not have to worry about which fund to select for their employees.

A SEP IRA is a simple way and cost-effective way to set up a retirement account. Is ideally suited for small business due to its low administration costs and its low amount of maintenance. It has simple forms and simple reporting. If your employer does not yet offer a retirement plan, you may want to suggest that they consider a SEP IRA.

Trust Funds

2008-02-18T07:19:00.000-08:00

Source: http://financialwww.com/

Once only available to those who could afford to fund it, can appoint an expensive trustee, the ability to run a trust fund and the tax advantages that it brings are available to all. Known as living trusts, they present an opportunity for all to manage their estate while they are still alive and provide for their loved ones after they have passed on.

By preparing a living trust, the party or parties involved are able to avoid their estates being put through a probate process after their passing. This is a costly and time consuming process, where only the legal system gains and the parties' heirs are denied access to the funds or assets that are legally theirs.

A living trust, virtually supersedes leaving what was once a "last will and testament", where the parties know that almost as soon as they pass on, their beneficiaries will be able to enjoy the fruits of "trustor's" life's labors which will be left to them in their estate. A trustee appointed by the party or parties who will be drawing up the living trust will handle all the arrangements necessary.

Nowadays anyone whose estate value of $100,000 or more can enjoy the benefits and knowledge that after their passing, the distribution of their estate will be handled both quickly and efficiently. Formerly the estate would be subject to probate laws, set in the state where they lived. Handling the disbursement of the estate after death could cost between 2%-4% of the estate value just in court and legal fees.

By preparing a living trust the party or parties can avoid a large portion of these fees, the time it takes to settle the probate, and a percentage of the estate taxes.

Living trusts can be funded by anything that the "trustor" decides. It can be money, stocks and bonds, property, life insurance policies and any item of personal property, valuable or not. The trustor has to clearly state who gets what once they pass on. When the trustor does pass on, then the appointed trustee oversees the distribution according to the "trustor's" exact wishes.

In the event that the "trustor" becomes infirm or incapacitated, unless they have left specific instructions to the contrary, the trustee will accept responsibility for the management of the estate. Beneficiaries will be unable to make changes to the way the estate is to be distributed after the "trustor's" passing, and new beneficiaries can be added.

By setting up a trust fund well in advance, the trustor can relax in the knowledge that their estate is in the capable and objective hands of a trustee, who will act in their best interest and in the interest of their loved, either if they become physically or mentally incapable of taking care of their affairs. When they pass on, the know that by creating a living trust they will have enabled their estate to be dissolved efficiently and rapidly, avoiding unnecessary distress to their loved ones.

Variable Universal Life Insurance - How to Get the Best Rate

2008-01-08T05:12:00.000-08:00

Author: Brian Stevens

Looking to buy variable universal life insurance? Want to know how to get the best rate with a reliable company? Here's how ...

What is variable universal life insurance?

This is a type of policy that consists of two parts - life insurance and an investment known as cash value. When you pay your premium, part of that money goes to pay for life insurance and the rest goes into your cash value account.

The cash value is invested in a group of funds by your insurance company. These funds generally consist of mutual funds that contain stocks and bonds. You can choose what funds you want to invest in, and these funds grow tax deferred. You can borrow money from the cash value portion of your policy at any time.

With variable universal life you're essentially paying for pure life insurance and investing in a mutual fund that increases in value on a tax-deferred basis.
When you borrow against your cash value you get this money tax free. However if you borrow too much, or the funds in the cash value portion of your policy decline, you may be required to increase your premium to keep your policy in force.

How can I get a cheap rate?

The best way to get a cheap rate is to get quotes from different companies and compare them. You can do this quickly and easily by going to an insurance comparison website. In addition to getting rate quotes, the best comparison sites let you talk to insurance experts so you can get answers to your questions and get advice on how to get the best policy and the best rate for your situation. (See link below).

How do I know the company I choose is reliable?

Most comparison websites only affiliate with A-rated companies. But if you want to check out a particular company you can visit A.M. Best's website (ambest.com) to get their financial rating, and J.D. Power & Associate's website (jdpower.com) to get their consumer rating.

Visit http://www.LowerRateQuotes.com/life-insurance.html or click on the following link to get variable universal life insurance quotes from top-rated companies and see how much you can save. You can get more tips and advice in their Articles section.

Source: http://www.articlesbase.com/

Etfs Vs. Mutual Funds: Miscalculate This and your Porfolio Will Bleed Profusely

2008-01-03T05:31:00.000-08:00

Author: Randall Berry

If you are still in mutual funds, listen up. Because if you are a reasonable person, you will want to run to the login screen of your online brokerage and look for proof to what I am about to reveal to you. ETFs offer downside risk protection no mutual fund can match.

It is a difference that could cost you thousands in your investment or retirement portfolio.

Okay, maybe you do not HAVE thousands in your investment accounts. If you are just starting to invest your money, pay particular attention my friend. The following page should make your decision between an ETF (exchange traded fund) and a mutual fund clear enough to make an investment decision or take corrective action if necessary.

Here are some basics.

ETFs and mutual funds are similar in that they both hold baskets of securities. A balanced mutual fund can hold bonds, stocks, T-bills and some cash. An ETF is essentially derived from stocks but takes on many forms.

Before I tell you about the potential mistake that could cost you thousands, here are the important differences between ETFs and mutual funds:

* Mutual funds are actively managed by a person who gets paid by people like us usually from the money that WE give him to manage. ETFs are purchased by us and can be bought and sold all day long with few restrictions and almost no minimums.

* Mutual funds charge 2% or more between loading and maintenance, whereas ETFs typically charge between .5 and 1%. Mutual funds usually have no transaction fee. Brokerage commissions must be paid when purchasing an ETF.

* Mutual funds incur capital gains even though no distribution activity (money back to you) takes place. ETFs usually find a way to avoid these taxable events. This is a significant advantage for an ETF and worse, it is not always clear to the investor how and when it happens.

* Mutual funds mitigate risk by sometimes holding cash in anticipation of a down stock market. ETFs are not actively managed, therefore, YOU the investor and purchaser of the ETF must account for this risk when you decide to buy them. Position sizing is one important consideration with an ETF purchase to manage this particular risk.

Here we go now. The biggest mistake you can make in your decision to allocate to mutual funds or ETFs is to overlook one HUGE advantage an ETF holds over the mutual fund:

* STOP-LOSS order: This is a tool you can employ to nail-down a floor beneath which the price of your ETF cannot fall. You arrange this with your broker or click a button if you are investing with an online brokerage. NO SUCH PROTECTION IS AVAILABLE with a mutual fund. And do not expect your fund manager to point this out.

This tactic can stop the bleeding if things really go wrong with the stock market. Better yet, you can set the stop loss and put it on automatic.

This is proactive management of your money, not merely active.

Whether you are just starting your investment portfolio or are a qualified investor you will want to keep yourself informed about the risks and strategies inherent with each class of personal financial investments. It is now possible to acquire a comprehensive library of knowledge on personal finance in audio format if you know where to look.

Carefully consider the point of view of any financial adviser with whom you seek counsel: Is the person carefully considering your future plans for your job or business before advising you?

Source: http://www.articlesbase.com/

Compare Mutual Funds-Tips For Finding The Top Ones To Reach Your Financial Goals

2008-01-01T05:16:00.000-08:00

Author: Josh Neumann

Many people want to know how to compare mutual funds to make the right decision. There are obviously many factors at work here. First of all, you need to determine if investing in this vehicle is right or you.

Generally speaking, a mutual fund is for people who aren't very financially educated, and really don't have any time to become so. They are generally for people who want to give their money to a fund manager and have them do the work for them.

If you aren't financially educated enough to read the financial statements of a company and determine it's overall financial health, then finding a best performing mutual fund is probably right for you. It is very risky to invest in a stock just based on whether it's stock price is going up or down.

These investments are divided into two groups based on the choice of how they are acquired. These groups are load and no load funds. No-load funds: The advantage of no-load funds is that 100% of your funds are fully invested from the beginning of the investment.

Loaded funds: The advantage of loaded funds is the addition of professional advice in which category to select for your goals. Important factors in considering if you should invest in a mutual fund should be:

Operating cost of the fund

The goal of the fund and if it matches your investment goal

Stock mutual funds are considered the most risky of all mutual funds. However, these funds are more likely to generate a higher return than the other types of mutual funds, especially over time.

Bond mutual funds deal with securities. Essentially, when you invest in bond mutual funds you are investing in the debt obligation of governments and corporations. Corporate bond investing are more risky than money market investments, and are often used to generate retirement income.

Since this type of investment is typically very diversified, they tend to reflect the trends of the market as a whole. When the market is doing well, generally the fund will do well, and when the market is going down, the fund will usually follow suit.

Of course, in times of a market crash, a mutual fund can literally wipe out your entire portfolio if you aren't careful. Therefore, don't ever buy into the myth that a fund isn't risky. It can be very dangerous, especially in times of a market crash. While these occurrences are rare, they can occur, and you certainly need to be wary of them.

The bottom line: it is always best to know what you are investing in before doing so. Your finances are one of the most important areas of your life. If you aren't financially educated, you can never achieve financial freedom.

It is never good to entrust your financial future to someone who really has no interest in it. When it comes to your finances, you need to take charge yourself. You can get by with outsourcing other areas of your life, but when it comes to your finances, you need to be the boss.

Remember this: you can always make more money making your own investment decisions than you can with a mutual fund. Yes, sometimes in a bull market it pays off, but is the risk really worth it?

Therefore, if you are set on investing in these vehicles, always compare mutual funds with their counterparts, and make sure it has a long history of profitability to find the best mutual funds. The top mutual funds are always those that have exhibited a long time of profitability so that you can be reasonably sure this trend will continue. While this step won't eliminate risk, it certainly can reduce it.

Tags: Best Mutual Funds, Compare Mutual Funds, Best Performing Mutual Funds, Corporate Bond Investing

Article Source: http://www.articlesbase.com

How to Pick a Good Mutual Fund

2007-12-08T05:25:00.000-08:00

Author: Justin Lukasavige

We've spent the past few weeks discussing investments so you'll know by now that we recommend good low risk mutual funds as the investment of choice.

There are a variety of things to look for in a mutual fund before you invest. As mentioned before, the stock market has averaged nearly 11% during the past 70 years. Depending on how aggressively you invest your money, I think you can generally count on a rate of return somewhere in the 10% - 12% range.

Now, what to look for in a mutual fund...

I usually recommend an index mutual fund for most of your investments. An index fund tracks a specific index, such as the S&P 500, which are the largest 500 stocks on the New York Stock Exchange (NYSE). Most index mutual funds do not have specific managers that are in charge of the fund, but rather are mostly automated in their day-to-day operations. If the fund does have a manager, it is important to note that he should have a long track record of good returns on that fund. If that manager or management team has only been with that fund for the past year or so, there is not much chance that the returns will continue to be what they have been over the past few years.

Another important number to look at is the expense ratio. It is fairly easy to find a fund with good returns and expenses less than 1%. The lower the better, but remember, if you buy a fund with an expense ratio of 1.5% that returns 12%, it would be better than a fund with expenses of .5% that returns 9%.

Usually I find that most people only care about one particular number; the past returns of a fund. While this is great information to be armed with, I always caution that past performance is no guarantee of future returns. That is especially true if a new manager is on the job.

An excellent website for free mutual fund research is Morningstar. In addition, they also have a free investor's classroom which contains some great information about not only mutual funds, but also stocks, bonds and other investments. In general, we suggest to start out small with a single mutual fund covering a broad range of the stock market, such as small and large companies as well as international stocks. When you have over $10,000 in investments, you can start branching out to ideally hold 25% in International, 25% in Aggressive mutual funds, 25% in Small companies, and 25% in large companies that pay dividends.

Tags: Money, Investments, Mutual Fund

Article Source: http://www.articlesbase.com

Mutual Funds-One Of The Financial World's Most Popular Investment Vehicles

2007-11-14T19:19:00.000-08:00

By : William Smith

Mutual funds are one of the financial world's most popular investment vehicles, and for good reason.

For a relatively small investment, these funds give individual investors the ability to buy a diverse portfolio of stocks and / or other financial instruments - all in one transaction.

If you have just two or more mutual funds, chances are that you're more than adequately diversified. This means that you don't have to worry about one bad apple (i.e. Enron) destroying your entire investment account.

How Mutual Funds Work

So how do these funds work? Each fund is actively managed by a mutual funds professional. This is someone who has several years of experience analyzing and trading stocks or other securities, probably has an advanced degree, and has worked his or her way up the ladder to what is essentially the top of the money management profession.

The fund manager chooses the securities that the mutual fund owns. These funds can be composed of stocks, bonds, and / or other financial instruments.

The types and balance of securities (i.e. 60 percent stocks, 35 percent bonds, 5 percent cash / money market), and the investment objectives and strategies (i.e. aggressive growth or equity income) are listed in the mutual fund's prospectus.

This way investors know what they are getting into each time they buy new mutual funds.

Mutual funds are split into shares, just like stocks. For example, a fund may own 5,000 shares of Microsoft (MSFT); 10,000 shares of General Motors (GM); 20,000 shares of Alcoa (AA), etc., and be split into 100 million shares itself.

If the net asset value (NAV) of the shares is $1 billion, then each share of the fund would be worth $10. The fund manager buys and sells shares of stock that the fund owns - you, in turn, can buy or sell your shares of the fund, but only at the end of each trading day.

No Load Mutual Funds vs. Load Mutual Funds

So what's the catch? Well, mutual fund managers have to be compensated for their services, so they charge you a fee which is sometimes called a "load."

Essentially, you are paying them to have the heartburn and ulcers associated with watching the stock market eight hours a day, 52 weeks a year, so that you don't have to. Whether or not the fund managers earn their keep depends on how skillful they are, and how the fund's fees are structured.

Load mutual funds charge either front-end loads or back-end loads. Front-end loads charge you a percentage of your initial investment.

For example, if you invest $10,000 each into a pair of front-end load funds with loads of 3 percent and 5 percent, you will only be investing $9,700 and $9,500, respectively. How long will it take your funds to make up the $800 you've lost right off the bat?

Instead of charging you up front, back-end load funds don't charge you a load until you withdraw your money.

These funds are usually a better deal, because the size of the loads usually decreases the longer you leave your money in the fund.

For example, a back-end load fund might have a load of 7 percent if you withdraw your money the first year, with the load going down by 1 percentage point each year, and reaching 0 percent by the eighth year.

Mutual Funds - Just Say No To Your Broker; Buy Direct Instead

Typically, full-service brokers with offices on Main Street only sell front-end load funds. This is because they receive an up-front commission on the sale of these products.

Mutual funds are designed for average investors - you don't need a broker to recommend these funds for you, and you don't need to pay the extra sales charges.

There are hundreds of good, no-load funds that charge only a small annual management fee (which load mutual funds charge in addition to their loads) available directly from fund companies.

Most funds have a minimum investment of $2,500, but this can usually be waved if you commit to regular monthly investments of as little as $50.

Article From: Article Submission Directory

Investing - A Beginners Guide

2007-11-14T18:52:00.000-08:00

By jupita fanklin

Managing the personal finances and to multiply it many fold needs prudent investment strategies. Without gaining adequate knowledge in investment, do not try your hand in various

investment options, which can result in drastic and sometimes disastrous results.

A new investor should first visit the local library and try to get various guides on personal finance. Issues relating to personal finance includes basis for a budget, sticking to the budget, saving money for an easy retirement life, major purchases, and managing the accrued finances properly.

New investors should go through newspapers such as Wall Street Journal, which will familiarize the reader with insurance, stocks, investments etc. through their Friday Column aptly named "Getting Going" by Jonathan Clement.

A new investor should not barge into the stock market based on any half-baked advice by close relatives or friends. For getting a proper idea about overall money management, study books such as The Intelligent Investor. For the sake of reference, this title is highlighted. If you browse in the bookstores or libraries, several other equally good guides might be available.

If excess cash is available immediately and if you are still going through the learning process, without wasting time, you can put the excess money in a mutual fund or even the bank.

Even though this learning process appears to be a daunting chore, it is better than relying on professional money market advisors who will charge a hefty amount for guiding you in making money. Ultimately, you and you alone are responsible for your financial situation - win win or no win.

Once a new investor gets a fair idea about personal finance management, further studies in mutual funds, stocks and bonds will be the next logical step.

A mutual fund is money pooled by a group of investors, which is used to buy stocks or bonds from various companies and strives to achieve a specified target of growth. Many mutual funds set 1000 dollars as the minimum initial investment money. A closed ended mutual fund is similar to a share issued by a company trading in the stock exchanges. It can be traded through a broker just like any other stocks. Open-ended mutual funds assure a fixed annual
income without any surprises.

Some of the popular mutual funds are money-market funds, balanced funds, index funds, pure bond funds, pure stock funds and tax-free bond funds.

The next logical step or the parallel step is investments in stocks.A certain amount of guesswork is needed for buying and selling them. To get some knowledge about the risks involved, try to play the investment games online, which simulates the practice of selling and buying stocks without losing money or facing any risk. After thorough familiarisation, a first trade in stock with
minimum investment can be tried.

Article written by Anastasia Phocas.

Source: http://www.Free-Articles-Zone.com

Mutual Fund Alternatives – Big Gains, Low Risk and Even Better

2007-11-14T18:20:00.001-08:00

By sacha tarkovsky

You can enjoy it to. It offers the lot low risk and high returns 30% + per annum and offers a great mutual fund alternative.

Mutual funds offer high risk and low returns after inflation so if you want better returns and low risk then try this one. Its overseas property investment, its cheaper and easier than most people think and the bonus is you not only get an appreciating asset, you can enjoy it to, by having your own home in paradise.

Consider this fact:

A property bought near the popular resort of Jaco in Costa Rica for $30,000 just 15 years ago is worth as much as $750,000 today!

The downside volatility was low, while these huge gains were made.

But it gets better!

This investment not only gives you an appreciating asset, it also gives you a valuable rental income if you want it and the chance to own and visit your own slice of paradise. An a mutual fund alternative it is not expensive and the returns and benefits are stunning.

It’s easy to do

There are plenty of companies to advice you on the best locations. Its tax efficient to and the buying process is easy and for peace of mind you get the same rights as residents?

Will these gains continue?

The answer is yes, because beach front property is up to 70% cheaper in Costa Rica and it’s only a 3 hour direct flight from the southern USA. More Americans and foreign investors are buying than ever before and investment continues to grow making this a trend in motion that will continue for many years.

A simple choice

Let’s face it, mutual funds on the whole consider they do well if they make 12% per annum and with drawdowns up to 30% common and losing periods that last for years it’s not a great investment in terms of risk reward.

Overseas property in Costa Rica is affordable and offers much more and is a great mutual fund alternative you can actually enjoy as well If you want 30% annual gains with low risk and an investment you can enjoy check out this mutual fund alternative and you may be glad you did.

Source: http://www.Free-Articles-Zone.com

Mutual Fund Alternatives – Big Gains, Low Risk and Even Better

2007-11-14T18:20:00.000-08:00

By sacha tarkovsky

You can enjoy it to. It offers the lot low risk and high returns 30% + per annum and offers a great mutual fund alternative.

Source: http://www.Free-Articles-Zone.com

Mutual Fund Alternatives - With Lower Risk and Higher Returns

2007-11-01T18:29:00.000-07:00

By sacha tarkovsky

Mutual funds as a group perform badly over the longer term.

Most cannot out perform the share index furthermore, a mutual fund is considered good if it reaches double digit gains.

If you take into account the effect of inflation on growth, mutual funds don’t look so attractive and the risk is high, with 30% or more in terms of drawdown and years to recovery in many instances.

So what are the alternatives?

There are plenty of mutual fund alternatives that not only offer higher returns, but lower risk and here we will look at one.

We all know that property is a good solid long term investment and it gets even better if it’s overseas investment property.

Overseas investment property is:

Cheap

Has high growth potential and low risk in many locations

can be very tax efficient

The country we will look at here is Costa Rica.

An example of the high growth potential can be made is illustrated by the following example.

A property purchased for just $30,000 near the popular holiday resort of Jaco 15 years ago, is worth $800,000 today.

The above gets even better when you consider these gains were steady and drawdowns were small and short lived.

But it gets better.

Overseas investment property can not only yield capital gains, it can also provide valuable extra rental income and act as a free holiday home – so you get to enjoy it to!

Will Costa Rica continue to provide great investment returns?

The answer is yes.

As more Americans want beach front property at affordable prices and in Costa Rica properties can cost up to 70% less than in the USA and Costa Rica is only a 2 hour flight away.

There are many expanding resorts where property can be bought cheaply with solid long term capital growth potential.

The buying process is easy.

Costa Rica encourages foreign investment and overseas buyers get the same rights as residents.

Investing in overseas property is also much easier than many people think.

You don’t need any specialist knowledge and there are many Realtors who specialize in helping foreign buyers acquire the right property in terms of:

Their budget and their expectations in terms of growth.

Many investors simply hope their mutual funds will deliver above average capital gains, but the odds are against them, despite what the sales literature says.

Of course, the risk is also high when investing in mutual funds and losing periods can and do, last years.

Costa Rica offers a great alternative to mutual funds and offers high returns, coupled with low risk.

If you are looking for solid longer term gains then an overseas property investment in a country such as Costa Rica is ideal.

Add in the potential for good rental income and a free holiday home and you have an investment you can actually enjoy as well, in one of the most beautiful countries on earth.

Consider the facts

Add all the above up and you have an investment that is well worth considering, from both a financial and a lifestyle point of view.

Over 100,000 Americans and other foreign investors have bought property in Costa Rica and maybe you should consider it to.

Source: http://www.Free-Articles-Zone.com

Sector Funds: More Than Meets The Eye

2007-08-14T19:17:00.000-07:00

By : Bill Byrnes

Believe that a part of the economy will be particularly strong or a part of the stock market is undervalued?

Sector mutual funds are one way of investing in market niches. Sector funds enable you to pinpoint your investments in areas such as health care, biotech, and technology (or financials, after the Fed rate cut).

ETFs are another, but have some additional risks. The common cautionary note about sector funds is they're just that: an investment concentrated in one area, where all the companies share similar characteristics and react to macroeconomic or industry events in the same way.

Thus, sector funds offer only limited diversification - within a group but a group where all the stocks will move in the same direction, for the same reason.

Sector funds offer the advantage of professional management. The portfolio manager should be able to pick the best stocks in the sector. They are a sound way for an investor to participate in sectors where they wish to invest a small portion of their assets but don't want the risk of having to select a single stock - avoiding the needle in the haystack theory.

The hidden risk of sector funds, or more than meets the eye, is that mutual funds in the same sector may have very different investment philosophies and/or definitions of what comprises suitable investments. To illustrate this point, let's look at two top ten funds, according to Morningstar, from the Utility and the Natural Resource sectors.

The JHT Utilities Trust (JEUTX) and the Fidelity Select Utilities Growth fund (FSUTX) are both top ten ranked utility funds but they're different. JHT defines utilities to include telephone companies, such as A&T, and has a foreign stock among its ten largest holdings. The Fidelity fund is focused on power generation and delivery companies.

The two funds only have three stocks in common among their ten largest holdings. The same is true for the Blackrock Global Resources fund (SGLSX) and the Vanguard Energy fund (VGELX).

Blackrock's top holdings are focused on exploration, drilling and coal. Vanguard owns more of the traditional large integrated oil companies. They have no stocks in common among their top ten holdings.

Neither strategy in our examples of top performing utility and natural resource funds is right or wrong, they're just different. That's the point.

Before investing in any sector fund (or any mutual fund), review its stated investment objectives and its top holdings. Then you'll really understand the nature of the fund and if it's the right fund for you.

Sector funds have their place in your portfolio, not as core holdings, but as a diversified way of making targeted investments in selected niches. Lastly, don't forget sector funds carry more risk than broadly diversified (investing across many sectors) mutual funds.

Article From: Article Submission Directory

Mutual Funds Better Than Indvidual Stocks ?

2007-08-01T18:32:00.000-07:00

By John Foley Foley [ 21/04/2006 ]
[ viewed 233 times ]

Though it cannot be said in general that mutual funds are always better than individual stocks, it still cannot be denied that they usually involve lower risks, less money and generally yield lower but safe returns.

It all depends on the risk attitude of the investor. This is understood clearly by looking at the disclaimer attached with any mutual fund options that are nearly identical with that applicable to any other (kind of) stock. They have their advantages and loopholes like any other form of investment. And as in other forms of investment, one has to be fully aware of potential pitfalls and while driving high with mutual funds, has to be alert enough to avoid them.

Mutual funds are seemingly the easiest and least stressful way to invest in the stock market. Quite a large amount of new money has been put into mutual funds during the past few years.

Briefly put, a mutual fund is a pool of money contributed to by individual investors, companies, and other organizations. There will be a fund manager hired to invest this cash with a primary goal that depends upon the type of fund. The manger usually diversifies in a manner such that the net average earning is expected to be considerably positive. S/he may be a fixed-income fund manager. In that case s/he would work hard to provide the highest return at the lowest risk. On the other hand a long-term growth manager should try at least to beat the Dow Jones Industrial Average or the S&P 500 in a given fiscal year.

But that is what any successful investor attempts to do, and anyone with a similar approach can be expected to make the same earnings.

It all depends really on the overall investment climate and the sectors in which funds are flowing in. Diversification is definitely a good approach when it comes to successful investing by a reasonable investor. But with mutual funds, there is that the controllers may over-diversify.

Diversification minimizes the inherent risks of stock trading by spreading out the capital over many stocks. But over-diversification is again a bad thing.

First, an investor gets into many funds that have significant mutual implications, thereby losing out on the full benefits of risk stretching that diversification affords.

Secondly, over-diversification may decrease your overall return. By hitting too many poor through mediocre funds, the investor reduces the return by missing the potential of a few well-managed funds.

It is true that mutual funds play it safe. This is because mutual funds are actively organized by a professional money manager who keeps constant checks on the stocks and bonds in the fund's portfolio. As this is her/his primary occupation, s/he can devote much more time to choosing investments than an individual investor. This provides the investor with the peace of mind that comes with informed investing without the stress of analyzing financial statements or calculating financial ratios.

But on the negative side, a mutual fund, unless open-ended, must remain confined within a fixed portfolio. Even with open ended mutual funds, the range of potential is often low as compared to what is available to an investor free to choose any stock s/he likes.

Besides, mutual funds some times come as load funds in which the investor has to pay the sales commission on top of the net asset value of the fund's shares. Also, the dollar-cost averaging strategy is just the same with mutual funds as to any common stock.

Of course, fixing such a plan can substantially reduce your long-term market risk and result in a higher net worth over a period of ten years or more.

Hence considering the stress, agony and risk that any stock may involve, mutual funds look a shade better than independent trading, if low but steady is ok for you.

Article Written By J. Foley : http://investments--trading.blogspot.com

Winning With Mutual Funds

2007-07-22T19:15:00.000-07:00

By : Adam Khoo

A mutual fund (called 'unit trust' in Asia) is an investment vehicle that pools money from many individual investors. A professional fund manager invests and manages these funds into stocks, bonds and other securities.

People usually invest in mutual funds because it is offers the advantage of broad diversification (it spreads your money over tens or hundreds of stocks to reduce risk) and professional management. However, do remember that as broad diversification reduces risks, it also reduces return.

First, here is the bad news. If you speak to most people who have invested in unit trusts in Asia (especially Singapore) or in mutual funds, most would report losing money or just earning measly returns of 2%-4%. In fact, in the year 2004, it was reported in the Straits Times that 559,000 Singaporeans lost $680 million by investing their CPF in these funds. By going to the largest unit trust distributor Asia, you can easily calculate that only 6% of unit trusts beat the S&P 500 over a ten-year period. What are the chances of you placing your bet on this 6%? Chances are you would have had lower returns that the index, while still having to pay those hefty sales charges and annual management fees.

How about the US mutual fund market? On average, less than 10% of mutual funds beat the S&P 500 index each year! What's worse is that it is a different 10% each year. Less than 3% of mutual funds are able to beat the S&P 500 Index over a five to ten year period. So again, what are the chances of you beating the market through betting on the right fund? Only 3%! You have better odds at the Black Jack table. The worse thing is that the fund manager gets paid an annual management fee whether or not the fund makes money.

Why is it so difficult for most people to make money in mutual funds? There are four main reasons.

1) High Sales Charges & Management Fees

Most people buy mutual funds through banks and financial institutions at retail prices where there is a sales charge (front load) and high annual management fees (expense ratios).

In Asia, most banks & financial institutions sell unit trusts with a sales charge of 5%-6% and with annual fees of 1.5%-2%. It means that before you even begin, you are down 6.5%-8% on your investment and will be down another 1.5% every year. Your fund must outperform the S&P 500 by 6.5%-8% just to make it worth your while! Again, less than 10% of funds worldwide can achieve this every year and less than 3% can achieve this over five years.

2) Buying the Hottest Performing Funds
Most people choose funds based on high short-term returns. These are the funds that are normally pushed and advertised by financial retailers. They feature impressive and enticing returns like 'This fund was up +65% in the last six months'.

The fact is that the best short-term performing funds tend to also be big losers in the subsequent years and long term. Why? Because these funds tend to be invested in hot stocks or hot sectors where the stocks have been rising rapidly and fund managers buy, riding on the momentum. That is why they post very spectacular returns. However, strong buying activity tend to push these stocks to be overvalued and sure enough, the stocks will come crashing down in the next few years. Mutual funds that consistently beat the S&P 500 tend to be invested in non-hot sectors and do not post spectacular short-term returns.

3) Limited Selection of Unit Trusts Locally

If you are in Asia, then you are normally exposed to only a limited number of unit trusts. A check with fundsupermart.com (the largest Asian unit trust distributor) shows that there are just about 300 funds available here compared to over 8,000 funds in the US market.

When I made a search on the Top Performing Fund sold locally (year 2005), I was presented with 'Fidelity America USD' with a 10-year annualized return of 11.27%. (Recall that the S&P 500 returned 12.08% a year). So, even the top-performing fund couldn't beat the S&P 500 after deducting expenses & fees!!

4) Lack of Research Knowledge, Data & Tools

The single most important reason why investors lose money in mutual funds
is because they don't have the knowledge or necessary information to search for the top 3% of consistent performing funds at the lowest costs. Investors tend to buy on the advice of their bank managers, facts from the fund fact sheet or prospectus which does not provide enough information to select the right fund.

Article From: Article Submission Directory

Advantages And Investments In Fund Of Funds

2007-06-30T19:08:00.000-07:00

By Alex Williams

If you haven't heard of a fund of funds, you might think it is just a redundancy. The truth is a fund of funds has some important advantages and disadvantages that you need to be aware of. A fund of funds is exactly what it sounds like. It is a mutual fund that invests in other mutual funds. At first it may seem silly to you, but here are some big advantages to investing in a fund of funds:

Double Diversification -A mutual fund diversifies across many different stocks. A fund of funds diversifies amongst many different funds.

Simplicity -Instead of investing in many different funds to achieve the same result, you can just invest in one fund. This allows for much less paperwork.

Cheap for Beginning Investors -It is tough to diversify when starting out because of account minimums. A fund of funds allows for an investor to diversify amongst hundreds or thousands of stocks in one small account.

Institutional Advantages -Funds of funds can often invest in desirable institutional funds that are off-limits for retail investors. They also have the ability to invest in some load funds without paying the load.

Source: http://EzineArticles.com/?expert=Alex_Williams

Which One is Better for Investing: Mutual Funds or Stocks

2007-06-04T19:05:00.000-07:00

Comparison between Mutual Funds and Stocks

Diversification

Mutual fund companies invest in a variety of stocks, bonds, and money-market investments, so mutual funds carry much lower risk than stocks.

Professional Management

Mutual funds enable investors to pool their money and place it under professional investment management. These managers have been around the industry for a long time and have the academic credentials to back it up.

Greater Upside Potential

Individual stocks have a greater upside potential than most mutual funds. Fluctuation in stocks is greater than mutual funds, so you have greater chance to earn more return.

Risk and Return

In general, Risk and return depend each other, the greater the risk, the higher the potential return; the lower the risk, the lower the expected return. Mutual funds try to reduce their risk by investing in a diversified group of individual stocks, bonds, or other securities.

Efficiency

Mutual funds have large sums of money to invest and often they trade commission-free and have personal contacts at the brokerage firms.

Conclusion

By investing in stocks you can get more return than mutual funds but, by investing in mutual funds your risk is lower. Mutual funds are great for funding retirement plans and investors that don't have the time or energy to consider individual stocks.

It is noticeable that most expert traders in stock market invest in mutual funds too. I recommend investing in both of mutual funds and stocks but, if you have experience, time and energy you can invest most of your money in individual stocks.

rce: http://EzineArticles.com/?expert=Mostafa_Soleimanzadeh

How a Mutual Fund Works

2007-05-08T18:58:00.000-07:00

I receive a lot of investing questions, and many of them have to do with mutual funds.

Mutual funds are not supposed to be confusing, but many so-called financial experts have confused us as consumers. A mutual fund is just what it sounds like... a fund that is funded mutually by many people.

A mutual fund usually has a team of managers that buy and sell stocks. The money they use comes from thousands and thousands of people who invest anywhere from $250 and up usually.

When you buy a mutual fund, you are giving your money to a specific team of managers who use it to do what is best for the fund. If you invest in Large Growth, you're generally investing in big companies that are growing. If you invest in an International fund, you're investing in stocks and bonds from overseas.

Many times a mutual fund can be as easy as that. Financial experts sometimes have a knack for overcomplicating things and that is where confusion enters the picture.

If you're interested in learning more about mutual funds, check out the Morningstar Investing Classroom.

High Return Investments – Which Offer The Best Returns?

2007-04-15T18:55:00.000-07:00

By kelly Price

If you want high investment returns you need to take a risk but the amount of risk you take for the reward you get is important. Which are the best high return investments in relation to risk?

Let’s find out and the answer may surprise you.

Let’s look at a variety of different investment sectors the facts show that there are good investment managers in all sections but lets look at them for the purpose of our analysis as a broad sector

1. Mutual Funds

Are these a good high return investment? Were told they are but do the facts add up. No they don’t. The overwhelming bulk of mutual funds cannot out perform the S & P Stock index and very few make double digit gains consistently.

Fact is, asset managers promote the ones that do well, then drop them when they don’t and find another with short term performance that’s good, then that’s dropped.

The fact is they make their fees anyway and most people just take the sales hype and end up disappointed.

Their a poor high return investment and best you can expect is double about 10 – 15% and with downside swings of up to 30% so the risk reward is not great.

2. Leveraged funds

These can include futures options and currencies but the facts show that while there are some great performers most put in mediocre performance.

You can get managers in this sector that only make on performance and this is the way to go should you wish to be involved in this sector. Normally you risk you entire investment and the best upside is normally 20% and this is a minority.

3. Real Estate

Although not seen as a high return investment, it beats mutual funds as an investment hands down in terms of risk – reward.

Most people who are careful with location and who hold longer term normally get good solid returns and low risk. Pick the right location and rewards can be stunning.

4. Land

Not as well known as real estate, but its cheaper to buy and can produce gains of similar magnitude or even greater.

Howard Hughes was a big fan of this high return investment as are most of the world’s richest families.

Land is a short supply their not making it anymore! and land bought in prime locations that gets developed produces spectacular gains.

Low risk investments can actually be high return investments

If you take the above 4 high return investments, it’s a fact that land and real estate produce far bigger gains on average than mutual funds or leveraged managed funds and they also do so with low risk.

If you want a high return investment forget the hype and the minority of mutual funds and leveraged funds that make stunning gains most don’t.

Hedge funds are a perfect example. Very few win. Their cloaked in secrecy, in offshore locations most of the time. So, you never know what’s going on and when you find out it’s too late.

High return and low risk

If you take real estate and land the way to turn these into high return investments is simply to pick the right location. If you do this you will have a high return investment with low risk.

Double your investment quickly with low risk!

There are many overseas locations in particular where you can buy easily, cheaply and have stunning potential rewards.

Costa Rica is a well known favourite of American and other foreign investors. Many savvy investors are making double or triple digit returns in just a few years with low risk.

It’s a safe country, investing is easy, its tax efficient and your investment is liquid i.e it can be bought and sold quickly to bank profits.

If you have never thought of land and real estate as high return investments you should.

You can get high returns and low risk in the right locations and Costa Rica is a perfect example of a location that gives you low risk and high reward.

Take a closer look and you may be glad you did.

What do you need to know about mutual funds

2007-03-14T18:50:00.000-07:00

By Mansi gupta

Every man wants to earn more and if that can come through the door of the stock market then it can be every man’s dream. Investment is a risk that a person has to take in order to earn profits. Now not everyone can be adventurous with money and thus most people require backing up of the other people. The latest method to invest in the modern times is through a mutual fund. The mutual fund is a kind of pooling up of the investor’s and investing them through a fund manager in a profitable business. Mostly the small time funds are put in bigger pools to multiply the returns. Thus the idea is to maximize the benefits. The aims of the investors being common give them enough reasons to go for such deals.

The mutual funds came into their recent form lately, but the idea had been conceived by the enterprising executives of United States of America and places in Europe. And today they have become one of the easiest and safest ways to invest in the fund market. The mutual funds USP is the high liquidity is can offer over any other equity instrument. The variations of investment and the types of mutual funds give a high level of reliability to the investor. Thus they have lately become very popular among the risk adverse investors.

Through out the twentieth century the mutual funds have seen a growth phase and they are still on the up. The mutual fund at the indexed market by was initiated by John. C. Bogel. And than throughout America they were becoming popular as basketball. The USA is on an investment spree and the total investment through the mutual funds is more then $5 trillion. Such staggering amounts show a high inclination of the investors towards this kind of investment. The investments are based on the certainty of growth and the size of the company. There are stock funds, the more risky growth funds, the chosen value funds etc. The whole concept depends upon the investor’s confidence in the company.

The more stable and convenient method of investment is through bonds. The bonds give the investor a secure return guarantee sort of thing. The ones who do not wish to venture into troubled waters prefer to stay in the safe zone. The returns in the money market are totally dependent upon the risk one is willing to take.

Now to succeed in the market one has to learn the language of the area. The jargons used by the dealers in his field have to well understand to get into the groove of the market. This gives a convenient method to understand the words used by the stock marketers.

Another upcoming trend in the stock market is the savings account and the deposit certificates. Another important incentive to the investors that as against the other investment types, only the mutual funds are having a compounding rate of return. Thus along with the risk, the returns of the mutual funds are at the top of the list. So as along as the money is to be secured mutual funds will be the best option possible.

Source: http://www.Free-Articles-Zone.com

Indian Real Estate: Another Realty Fund

2007-03-09T18:48:00.000-08:00

By Properties mls

Indian Real Estate: Going Dutch With ABN-Amro As foreign investments in Indian real estate pours in, we have Netherlands ABN-Amro Mutual Fund filing with the capital markets regulator, Securities & Exchange Board of India (SEBI), in the interest of a scheme that will invest in real estate and leading property firms across the globe.

The ABN-Amro Global Property (India) Equity Fund, which awaits the regulator’s nod, will invest in foreign equity and equity-related securities through ABN-Amro’s Luxembourg-based ABN-Amro Global PropertyEquity Fund. The latter is a diversified, actively managed fund that mainly invests in realty and top property firms across the globe.

Last year saw the market regulator, further liberalising rules to allow mutual funds to launch schemes for investing in overseas equity or equity-oriented schemes, in a move to provide more diversified products to the Indian retail investors.

Following this, Principal PNB Mutual tweaked its existing scheme to invest in equities of emerging markets, while Franklin Templeton launched a scheme that would partly invest in overseas equity. But, nofund house launched a scheme for overseas realty firms. The move by ABN-Amro Mutual Fund coincides with SEBI’s own plan to allow India-registered mutual funds to launch real estate funds.

The Reserve Bank of India (RBI) allows resident Indians to invest $50,000 per annum overseas. According to analysts, the ABN-Amro scheme is aimed at this segment, while officials at ABN-Amro were unavailablefor comments, since rules bar them from talking about a scheme before it gets SEBI’s approval.

ABN-Amro filings say, the portfolio will invest in the stocks of different countries, but the investment manager of the proposed scheme will ensure that the exposure to each country is limited, to avoid the portfolio being exposed just to one country.

Source: http://www.Free-Articles-Zone.com

Constructing an All-Weather Mutual Fund Portfolio

2007-02-28T18:44:00.000-08:00

By Sam Subramanian [ 25/10/2006 ]
[ viewed 73 times ]

Equity mutual funds perform differently in different time periods as investment styles and sectors come in and go out of favor. While screening tools readily provide performance data and make the task of identifying top mutual funds relatively easy, there is more to constructing an all-weather portfolio than screening for the top funds.

This article describes methods of constructing an all-weather portfolio. Before getting into the nitty-gritty of constructing an all-weather portfolio, it helps to know how equity mutual funds are classified and how their performance is impacted by market conditions.

Classification by Market Capitalization & Style

Equity funds are commonly classified based on market capitalization of the companies in which they invest their assets and investment style.

Market capitalization is divided into three categories: large, medium, and small. Investment style likewise is divided into three categories: value, growth, and blend.

Combining both types of classifications, equity mutual funds typically fall into one of nine boxes on a 3 x 3 matrix. This classification system works well in analyzing diversified funds.

Classification by Sector & Industry Group

Instead of dividing the equity market by market capitalization and investment characteristics such as value or growth, an alternative way is to slice it by sectors. The Global Industry Classification System jointly developed by Standard & Poor’s and Morgan Stanley Capital International, for example, classifies the equity market into ten sectors, such as financials and information technology. Each sector in turn is divided into several industry groups. This classification system is particularly useful for analyzing sector funds that invest their assets in a given sector like information technology or industry group like computer hardware.

Impact of Business Cycle

The net asset value per share of a fund changes in response to the prices of stocks held in its portfolio. Generally speaking, stock prices are impacted by business conditions. The business cycle has various phases to it: Recovery, Boom, Slowdown, and Recession. Different parts of the stock market as seen from market capitalization, style, or sector perspectives perform differently in different phases of the business cycle.

Impact on Diversified Funds

Growth style funds, in general, fare well during expansion phases such as recovery and boom, and value style funds during contraction phases such as slowdown and recession. Likewise, from a capitalization perspective, small cap funds tend to perform better during expansion and large cap funds during contraction.

Looking at the most recent boom-bust cycle, Spectra Fund, a large cap-growth fund, was among the star performers during the 1997-1999 boom. Spectra gained 141% during the three-year period ending October 31, 1999. However, Spectra fared poorly during the 2000-2002 slowdown and lost 52% during the two-year period ending October 31, 2002.

In complete contrast, Hotchkis & Wiley Small Cap Value Fund, which failed to participate in the 1997-1999 boom, was among the top funds during the 2000-2002 slowdown. Following the 30% loss for the two-year period ending June 30, 2000, Hotchkis gained 88% during the two-year period ending June 30, 2002.

Impact on Sector Funds

Like diversified funds, certain sector funds tend to perform better during some phases of the business cycle. Sector funds that invest in economically sensitive sectors such as technology typically tend to perform better during expansion phases. Sector funds that invest in economically less sensitive sectors like consumer staples typically tend to perform better during contraction phases. As a result, a sector fund that performs best in one time-period may not perform as well in another time-period.

Among the 41 Fidelity sector funds, Fidelity Select Energy Services was the top fund in 2005 with a 54% gain. However in 2003, the same fund gained just 8% to be the worst performer.

Constructing an All-Weather Portfolio

Can one select the top fund by knowing what stage the business cycle is in? Unfortunately, things do not get that easy.

Getting the turning points of the business cycle right is less than a science. Although certain styles and sectors are expected to do better during particular stages of the business cycle, there is no certainty they will do so each time. Additionally, stock prices tend to anticipate and lead the business cycle. The performance of a fund therefore usually varies from one economic cycle to another.

So, rather than chase the top funds, a prudent course is to construct a robust, all-weather portfolio.

A) Constructing with Diversified Funds

One way to construct an all-weather portfolio is to use diversified funds that emphasize different types of market capitalizations and investment styles. To simplify the task, one may construct a portfolio using a large cap-growth fund, a large cap-value fund, a small cap-growth fund, and a small cap-value fund.

In evaluating funds in each category, focus on the long-term track record and see how the funds have fared in different market environments. Complement this by evaluating each fund on non-performance-based metrics such as manager tenure, price volatility or risk, mutual fund fees, and mutual fund fiduciary grade. Choose the best available fund in each category and build your portfolio with managers of a ‘dream team’ caliber.

Alternatively, if you want to restrict yourself to only one fund to start with, you may consider a total market index fund which spans all capitalizations and styles.

B) Constructing with Sector Funds

Sector funds can also be used to construct an all-weather portfolio. This approach offers the advantage of creating customized diversified portfolios by including sectors and industry groups which are likely to outperform the market indexes and excluding those which are likely to under-perform.

The reward potential can be enhanced by concentrating in a few sectors or industry groups. Diversification across several sectors and industry groups serves to mitigate risk. By optimizing the balance between concentration and diversification, one can achieve superior nominal and risk-adjusted returns.

The AlphaProfit Core model portfolio exemplifies this approach. Over the 33 month period from September 30, 2003 to June 30, 2006, the AlphaProfit Core model portfolio gained 57% compared to 39% for Dow Jones Wilshire 5000 Total Market Index.

Key Points

1. There are no top mutual funds for all times and climes.
2. A prudent course is to build a robust, all-weather portfolio.
3. Diversified funds as well as sector funds can be used to construct an all-weather portfolio.

Notes: This report is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. This report does not have regard to the specific investment objectives, financial situation, and particular needs of any specific person who may receive this report.

Source: http://www.Free-Articles-Zone.com

Hedge fund regulations guide 101

2007-02-10T18:42:00.000-08:00

By Mansi gupta

The popularity gained overtime and the ever-increasing crowd of investors in the Hedge Fund industry has augmented the need for higher degree of regulation in the hedge fund market.

Hedge funds are very similar to mutual funds except that there are fewer regulations on hedge funds. As a result hedge funds require a much larger investment. Hedge funds are very reticent, that is, they are private, between individuals, and do not have to be made known to the government or other companies. This allows hedge funds to be free from the regulations that mutual funds have to adhere to. Because of this large companies move undisclosed amounts of money and gain significantly without authorities noticing. This reticent nature of hedge funds makes them look suspicious and leads to many apprehensions in the minds of the investors, such as; these funds are unethical, speculative and risky. Also their high price tag and the extravagant amount of money required for their initial purchase makes people think that the investors are being hood winked into putting money into these funds. Only ensuring high levels of transparency in the working of the hedge fund industry so that an investor knows exactly where his money is going can clear these apprehensions.

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Moreover, better regulation will produce more accountable hedge fund managers in future and the investors would be able to simply research the background of a hedge fund manager before entrusting their money into his hands.

Another negative aspect of the non-regulation of hedge funds is that there are no official hedge fund statistics. Most hedge fund holders are large companies and hence, little is known about their financial movements. Hedge funds are based in offshore jurisdictions, making them look even more suspicious. For instance, unlike mutual funds that have a base in large cities like New York, hedge funds are based in places like Bermuda, Cayman Islands, and the Virgin Islands.

Hedge funds also have a higher failure rate than traditional funds. Many of them fail by the second or third year of operation. It has been estimated that about 5.7% of the existing 8500 hedge funds closed in 2005. This vulnerability to quick falls that can be detrimental and can lead to sudden losses can be brought down with the help of regulations.

In London, the techniques used for the hedge funds operating from there, have bothered the Financial Services Authority. Hence, to check the functioning of this industry, the FSA has now decided to start regulating hedge funds and their managers. Also, a special hedge fund unit has been set up to determine how the London hedge fund industry which has been estimated at £500-billion, can be controlled better.

However, the Canadian Securities Administrators that is the umbrella organization for Canada’s provincial securities commissions has decided that the currently existing rules for investment vehicles are sufficient to regulate the burgeoning Canadian hedge fund industry (a $30-billion industry). This implies that no additional rules and regulations would be laid down specifically for hedge funds in Canada.

Thus, with the proper regulations in place, the clouds of suspicion and uncertainty that are hovering over the hedge fund industry will certainly clear up and would pave the way for a much safer hedge fund market that would attract a larger number of investors.

Source: http://www.Free-Articles-Zone.com

Real Estate Funds for NRIs

2007-02-01T18:40:00.000-08:00

By Properties mls

Finance Ministry has told the capital markets watchdog Sebi (Securities and Exchange Board of India) to take a final view on allowing mutual funds to unveil schemes which could invest in real estate. Media reports, quoting officials, said Sebi was of the view that there were legal constraints in opening up, considering that investment in real estate was not a permissible activity. However, the government has said that like in the case of gold, Sebi’s regulations could be amended to allow mutual funds to launch real estate schemes. Real estate mutual funds invest in projects directly, to develop real estate. This could be in the form of investments in the securities issued by such companies or in securitised assets.

Experts say Sebi’s move may lead to the formation of real-estate investment trusts in India. A real estate investment trust is a mutual fund that buys a real estate project and is close-ended and listed. If the project has a rental revenue model, that is, it is leased out and REITs continues to own it, the fund is treated as a debt fund and if it’s sold off, that is, the ownership changes hands, it’s treated like an equity fund. Worldwide, REITs account for more than $ 1 trillion in assets.

Some real-estate companies believed to be interested in setting up real-estate trusts are RNA, Pantaloon, Piramals, HDFC and L&T.

Another interesting recent development is that Sebi has approved the proposals of some 20 venture capital funds (VCFs) to invest in real estate in India.

Real estate VCs attract funding from three sources — domestic institutional investors and banks, which account for 50-60 per cent of the funds raised; corporate houses and high networth individuals, which account for 20-30 per cent of the investment; and NRIs and PIOs who chip in with another 20 per cent.

Source: http://www.Free-Articles-Zone.com

Stock Market Window Dressing: The Art of Looking Smart!

2007-01-24T18:38:00.000-08:00

By Steve Selengut

As investors, and we all are investors these days, it is important that we understand the idiosyncrasies of the Stock Market pricing data we use to help us in our decision making efforts. On Wall Street, investing can be a minefield for those who don't take the time to appreciate why securities prices are at the levels that appear on quarterly account statements. At least four times per year, security prices are more a function of institutional marketing practices than they are a reflection of the economic forces that we would like to think are their primary determining factors. Not even close... Around the end of every calendar quarter, we hear the financial media matter-of-factly report that Institutional Window Dressing Activities" are in full swing. But that is as far, and as deep, as it ever goes. What are they talking about, and just what does it mean to you as an investor?

There are at least three forms of Window Dressing, none of which should make you particularly happy and all of which should make you question the integrity of organizations that either authorize, implement, or condone their use. The better-known variety involves the culling from portfolios of stocks with significant losses and replacing them with shares of companies whose shares have been the most popular during recent months. Not only does this practice make the managers look smarter on reports sent to major clients, it also makes Mutual Fund performance numbers appear significantly more attractive to prospective "fund switchers". On the sell side of the ledger, prices of the weakest performing stocks are pushed down even further. Obviously, all fund managements will take part in the ritual if they choose to survive. This form of window dressing is, by most definitions, neither investing nor speculating. But no one seems to care about the ethics, the legality, or the fact that this "Buy High, Sell Low" picture is being painted with your Mutual Fund palette.

A more subtle form of Window Dressing takes place throughout the calendar quarter, but is "unwound" before the portfolio's Quarterly Reports reach the glossies. In this less prevalent (but even more fraudulent) variety, the managers invest in securities that are clearly out of sync with the fund's published investment policy during a period when their particular specialty has fallen from grace with the gurus. For example, adding commodity ETFs, or popular emerging country issues to a Large Cap Value Fund, etc. Profits are taken before the Quarter Ends so that the fund's holdings report remains uncompromised, but with enhanced quarterly results. A third form of Window Dressing is referred to as "survivorship", but it impacts Mutual Fund investors alone while the others undermine the information used by (and the market performance of) individual security investors. You may want to research it.

I cannot understand why the media reports so superficially on these "business as usual" practices. Perhaps ninety percent of the price movement in the equity markets is the result of institutional trading, and institutional money managers seem to be more concerned with politics and marketing than they are with investing. They are trying to impress their major clients with their brilliance by reporting ownership of all the hot tickets and none of the major losers. At the same time, they are manipulating the performance statistics contained in their promotional materials. They have made "Buy High, Sell Low" the accepted investment strategy of the Mutual Fund industry. Meanwhile, individual security investors receive inaccurate signals and incur collateral losses by moving in the wrong direction.

From an analytical point of view, this quarterly market value reality (artificially created demand for some stocks and unwarranted weakness in others) throws almost any individual security or market sector statistic totally out of wack with the underlying company fundamentals. But it gets even more fuzzy, and not in the lovable sense. Just for the fun of it, think about the "demand pull" impact of an ever-growing list of ETFs. I don't think that I'm alone in thinking that the real meaning of security prices has less and less to do with corporate economics than it does with the morning betting line on ETF ponies... the dot-coms of the new millennium. [Do you remember the "Circle of Gold" from the seventies? Isn't GLD, or IAU, about the same thing?]

As if all of these institutional forces weren't enough, you need also consider the impact of tax code motivated transactions during the always-entertaining final quarter of the year. One would never suspect (after watching millions of CPA directed taxpayers gleefully lose billions of dollars) that the purpose of investing is to make money! The net impact of these (euphemistically labeled) "year end tax saving strategies" is pretty much the same as that of the Type One Window Dressing described above. But here's an off-quarter buying opportunity that you really shouldn't pass up. Simply put, get out there and buy the November 52-week lows, wait for the periodic and mysterious "January Effect" to be reported by the media with eyes wide shut amazement, and pocket some easy profits.

There just may not be a method to actually decipher the true value of a share of common stock. Is market price a function of company fundamentals, artificial demand for "derivative" securities, or various forms of Institutional Window Dressing? But this is a condition that can be used to great financial advantage. With security prices less closely related to those old fashioned fundamental issues such as dividends, projected profits, and unfunded pension liabilities and perhaps more closely related to artificial demand factors, the only operational alternative appears to be trading! Buy the downtrodden (but still fundamentally investment grade) issues and take your profits on those that have risen to inappropriately high levels based on basic measures of quality... and try to get it done before the big players do. To over simplify, a recipe for success would involve shopping for investment grade stocks at bargain prices, allowing them to simmer until a reasonable, pre-defined, profit target is reached, and seasoning the portfolio brew with the discipline to actually implement the profit taking plan.

Just call me old fashioned, but I miss the days when there were just stocks and bonds... interesting place Wall Street.

Source: http://www.Free-Articles-Zone.com

Mutual Fund Expenses

2007-01-10T18:36:00.000-08:00

By Sachin A

An informed investor knows where his money is going. For an investor in mutual funds, it is essential to understand the expenses of mutual funds. These expenses directly influence the returns and cannot be neglected.

The expenses of mutual funds are met from the capital invested in them. The ratio of the expenses associated with the operation of the mutual fund to the total assets of the fund is known as the “expense ratio.” It can vary from as low as 0.25% to 1.5%. In some actively managed funds it may be even 2%. The expense ratio is dependant on one more ratio – “the turnover ratio”.

“The turnover rate” or the turnover ratio of a fund is the percentage of the fund’s portfolio that changes annually. A fund that buys and sells stocks more frequently obviously has higher expenses and thus a higher expense ratio.

The mutual fund expenses have three components:

The Investment Advisory Fee or The Management Fee: This is the money that goes to pay the salaries of the fund managers and other employees of the mutual funds.

Administrative Costs: Administrative costs are the costs associated with the daily activities of the fund. These include stationery costs, costs of maintaining customer help lines and so on.

12b-1 Distribution Fee: The 12b-1 fee is the cost associated with the advertising, marketing and distribution of the mutual fund. This fee is just an additional cost which brings no actual benefit to the investor. It is advisable that an investor avoids funds with high 12b-1 fees.

The law in US puts a limit of 1% of assets as the limit for 12b-1 fees. Also not more than 0.25% of the assets can be paid to brokers as 12b-1 fees.

It is important for the investor to watch the expense ratio of the funds that he has invested in. The expense ratio indicates the amount of money that the fund withdraws from the funds assets every year to meet its expenses. More the expenses of the fund, lower will be the returns to the investor.

However it is also essential to keep the performance of the funds in mind too. A fund may have higher expense ratio, but a better performance can more than compensate higher expenses. For example, a fund having expense ratio 2% and giving 15% returns is better than a fund having 0.5% expense ratio and giving 5% return.

Investors should note: It is not sensible to compare returns of funds in different risk classes. Returns of different classes of funds are dependant on the risks that the fund takes to achieve those returns. An equity fund always carries a greater risk than a debt fund. Similarly an index fund that invests only in relatively stable and thus less risky index stocks, cannot be compared with a fund that invests in small companies whose stocks are volatile and carry greater risk.

Avoiding funds with high expense ratio is a good idea for the new investor. The past performance of a fund may or may not be repeated, but expenses usually do not vary much and will certainly reduce returns in future too.

Source: http://www.Free-Articles-Zone.com

Privacy Policy for Mutual Funds guide center

2007-01-03T22:05:00.000-08:00

If you require any more information or have any questions about our privacy policy, please feel free to contact us by email at kedarah@hotmail.com.

At Mutual Funds guide center, the privacy of our visitors is of extreme importance to us. This privacy policy document outlines the types of personal information is received and collected by Mutual Funds guide center and how it is used.

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Mutual Funds - An Introduction and Brief History

2007-01-01T18:34:00.000-08:00

By Sachin A

Each one of us does not have the expertise or the time to build and manage an investment portfolio. There is an excellent alternative available – mutual funds.

A mutual fund is an investment intermediary by which people can pool their money and invest it according to a predetermined objective.

Each investor of the mutual fund gets a share of the pool proportionate to the initial investment that he makes. The capital of the mutual fund is divided into shares or units and investors get a number of units proportionate to their investment.

The investment objective of the mutual fund is always decided beforehand. Mutual funds invest in bonds, stocks, money-market instruments, real estate, commodities or other investments or many times a combination of any of these.

The details regarding the funds’ policies, objectives, charges, services etc are all available in the fund’s prospectus and every investor should go through the prospectus before investing in a mutual fund.

The investment decisions for the pool capital are made by a fund manager (or managers). The fund manager decides what securities are to be bought and in what quantity.

The value of units changes with change in aggregate value of the investments made by the mutual fund.

The value of each share or unit of the mutual fund is called NAV (Net Asset Value).

Different funds have different risk – reward profile. A mutual fund that invests in stocks is a greater risk investment than a mutual fund that invests in government bonds. The value of stocks can go down resulting in a loss for the investor, but money invested in bonds is safe (unless the Government defaults – which is rare.) At the same time the greater risk in stocks also presents an opportunity for higher returns. Stocks can go up to any limit, but returns from government bonds are limited to the interest rate offered by the government.

History of Mutual Funds:

The first “pooling of money” for investments was done in 1774. After the 1772-1773 financial crisis, a Dutch merchant Adriaan van Ketwich invited investors to come together to form an investment trust. The goal of the trust was to lower risks involved in investing by providing diversification to the small investors. The funds invested in various European countries such as Austria, Denmark and Spain. The investments were mainly in bonds and equity formed a small portion. The trust was names Eendragt Maakt Magt, which meant “Unity Creates Strength”.

The fund had many features that attracted investors:

- It had an embedded lottery.
- There was an assured 4% dividend, which was slightly less than the average rates prevalent at that time. Thus the interest income exceeded the required payouts and the difference was converted to a cash reserve.
- The cash reserve was utilized to retire a few shares annually at 10% premium and hence the remaining shares earned a higher interest. Thus the cash reserve kept increasing over time – further accelerating share redemption.
- The trust was to be dissolved at the end of 25 years and the capital was to be divided among the remaining investors.

However a war with England led to many bonds defaulting. Due to the decrease in investment income, share redemption was suspended in 1782 and later the interest payments were lowered too. The fund was no longer attractive for investors and faded away.

After evolving in Europe for a few years, the idea of mutual funds reached the US at the end if nineteenth century. In the year 1893, the first closed-end fund was formed. It was named the “The Boston Personal Property Trust.”

The Alexander Fund in Philadelphia was the first step towards open-end funds. It was established in 1907 and had new issues every six months. Investors were allowed to make redemptions.

The first true open-end fund was the Massachusetts Investors’ Trust of Boston. Formed in the year 1924, it went public in 1928. 1928 also saw the emergence of first balanced fund – The Wellington Fund that invested in both stocks and bonds.

The concept of Index based funds was given by William Fouse and John McQuown of the Wells Fargo Bank in 1971. Based on their concept, John Bogle launched the first retail Index Fund in 1976. It was called the First Index Investment Trust. It is now known as the Vanguard 500 Index Fund. It crossed 100 billion dollars in assets in November 2000 and became the World’s largest fund.

Today mutual funds have come a long way. Nearly one in two households in the US invests in mutual funds. The popularity of mutual funds is also soaring in developing economies like India. They have become the preferred investment route for many investors, who value the unique combination of diversification, low costs and simplicity provided by the funds.

Source: http://www.Free-Articles-Zone.com