What Are Some Simple Objectives of Mutual Fund?
Mutual fund objectives is to act in the best interest of its investors. All the activities of the mutual fund are directed only towards serving its investors in the best possible manner. Following are the certain objectives of the investors that can be fulfilled by the mutual funds:-
Fund Types
There are four basic types of mutual fund objectives. Equity funds invest exclusively in stock. Fixed-income funds invest in bonds, and money market funds invest in Treasury bills and short-term, liquid, high-quality securities. All mutual funds are made up of one or more of these three asset classes. Funds are sometimes named, ostensibly, for their objective and have catchy names such as Global, International, Growth and Overseas. Evaluate the prospectus rather than drawing a conclusion from the fund’s title.
Diversification
One consistent mantra of investing is diversification. Simply put, you should not place your entire investment in one company. Because mutual funds are based on the securities of many companies, buying shares in a fund automatically diversifies your portfolio. This might be an otherwise impossible task. Consider that one share of Apple Inc. trades for as much as $600, as of 2012. You might not have enough money available to adequately diversify.
Goals
To select the funds in which to invest, a clear understanding of your investment goals is crucial. If you don’t have clear investment objectives, you might as well choose your fund by throwing a dart or tossing a coin. If you are young with a healthy earnings future ahead, investment in a fund that is geared more toward growth than safety may be appealing. Alternatively, if you are approaching retirement, a more conservative fund such as a balanced income fund may suffice. If you are already enjoying your retirement, you might be a candidate for a money market fund, which offers little in the way of return but is extremely low in risk. Become acquainted with the securities in the fund you are considering. This will help ensure your comfort level. This is one of the major mutual fund objectives.
Costs
Mutual funds earn income from fees charged to account holders. Transaction fees are incurred each time you buy or sell shares. These fees are couched in the term “load.” Then there are annual fees, which are akin to a membership fee and serve to pay operating expenses. Taken as a whole, these fees can range from 0.2 percent to as much as 2 percent. The average fees are 1.3 percent to 1.5 percent. If you are in a specialty or global fund, you will likely pay more because they require managers with a higher level of expertise. You don’t need to break out the calculator to see how these fees can be a drag on your return. High fees do not guarantee superior performance. Select your mutual fund on the basis of its track record and don’t be lulled into thinking a high fee will guarantee exceptional performance, as there usually is no correlation.
