Are you thinking about buying mutual funds? If you are interested in stock and bond trading, investing in mutual funds can be a perfect place to start. Like any other investment idea, mutual funds can be confusing at first, especially if you are new to the trade. Learning some basics about mutual funds investing can give you a better understanding of the process.
There are numerous benefits associated with investing in mutual funds. As an investor in Singapore, you need to ensure you invest with a reliable trade broker like Saxo Bank to enjoy these benefits. Finding a trusted broker firm is the only sure way to ensure your investment is safe and entrusted to genuine portfolio managers. For your online broker to manage your mutual fund, you are required to choose the best mutual fund for your needs.
Here is everything you need to know about picking a mutual fund.
Choosing a mutual fund
Picking a mutual fund is a process you need to take seriously. This will ensure you pick the best investment for your needs. Some of the factors to consider include:
Sales charges
These are the fee you pay to be able to invest in a fund or sell a fund. It is charged by the firm managing your portfolio in addition to any brokerage fees. Avoid any mutual funds that charge sales charges, usually termed as loads.
The expense ratios
The expense ratio refers to any funds you are charged annually by a fund manager for managing your mutual fund. Index funds are passively managed funds and thus attract the lowest expense ratios. Mutual funds are mostly actively managed by a portfolio manager, and thus attract higher expense ratios. Even so, go for a mutual fund investment that comes with an expense ratio lower than 1%, ensuring that it still meets your investment needs.
The turnover
The turnover refers to how often your portfolio manager changes the investment portfolio. If the turnover ratio for a manager is 100%, it means that the manager invests in new stock baskets for your mutual fund each year. This means that they are turning over 100% of the investment annually.
The best turnover should not be more than 20%. The lower the turnover, the more confident the manger is in their investment choices. High turnovers mean that the manager is not confident in the choices, which means they cannot fully be trusted not to make risky investment choices. It also shows that they are impatient and do not hold the best interests of the investor at heart.
Some fund managers are paid bonuses based on how their funds perform annually, hence the high annual turnover. This does not correlate with long terms buy and hold strategies that come with low turnovers.
The investment policy
Before investing in a mutual fund, it is important to take the time to understand the investment policy. It would be best if you learned how the broker picks the funds, who manages the funds, and their long-term goals. Taking the time to understand the ins and outs of how the brokerage and a fund operates will ensure the fund you choose aligns with your long term and short terms investment goals.
Conclusion
While investing in mutual funds requires a lot of research, it should not be as complicated as most people imagine. You are more likely to make the right decision if you know what to look for in the best mutual fund based on your investment goals and needs. Following the simple steps above, you will be well on your way to becoming a mutual investor in no time.
Ensure you check on your mutual funds as often as possible to see how it is performing. Remember that the stock market fluctuates, and thus you should not panic if you find that sometimes you lose money. Consider the long-term goal.
