Is a mutual fund a good investment?
Mutual funds are a good investment for investors looking to diversify their portfolios. Instead of going all-in on one company or industry, a mutual fund invests in different securities to try and minimize your portfolio's risk.
When it comes to mutual funds, you can make money in three possible ways: Income earned from dividends on stocks and interest on bonds. A mutual fund pays out nearly all of the net income it receives over the year (in the form of a distribution). An increase in the price of securities (called a 'capital gain').
Mutual funds work by pooling money together from many investors. That money then gets used to purchase stocks, bonds and other securities. Because mutual funds invest in a collection of companies, they offer instant diversification (thus lower risk) to investors.
Investing directly in mutual funds can be an effective way to save for retirement. A sharp loss or even failure of a single company has far less impact on investors who are only exposed to it as part of a mutual fund, since their money is spread across dozens or hundreds of companies.
Are mutual funds safe? All investments carry some risk, but mutual funds are typically considered a safer investment than purchasing individual stocks. Since they hold many company stocks within one investment, they offer more diversification than owning one or two individual stocks.
Mutual funds help investors diversify unsystematic risks by investing in a diversified portfolio of stocks across different sectors. While individual stocks have both unsystematic and systematic risks, mutual funds are only subject to systematic risk or market risk.
It is crucial to implement 50:30:20 rule in your financial plan. One should invest at least 20% of their salary in mutual funds and can later increase whenever possible.
| Scheme Name | 1 Year | 5 Years |
|---|---|---|
| Kotak Select Focus Fund (G) | 8.55% | 20.77% |
| Mirae Asset India Equity Fund – Reg (G) | 13.44% | 20.76% |
| Parag Parikh Long Term Equity Fund – Reg (G) | 15.97% | N/A |
| SBI BlueChip Fund – Reg (G) | 12.03% | 18.15% |
You can earn a monthly income from Mutual Funds either by investing in the Dividend Option of a mutual fund scheme or by opting for an SWP in a mutual fund scheme. SWP is a better option to seek regular income as it is more tax-efficient and guarantees you a certain amount at the end of the month.
Mutual Fund or 401(k)?
The choice to invest in a mutual fund or a 401(k) is completely up to the needs of the investor. Most financial experts suggest enrolling in a 401(k) to shore up money for retirement, while investing in mutual funds for both long- and short-term gains.
Are mutual funds better than IRA?
Since your IRA is tax-advantaged already that can help to minimize your investment tax on gains. A passively managed index fund or an exchange-traded fund (ETF) on the other hand, could be a better fit for a taxable brokerage account. As mentioned, passively managed mutual funds tend to have lower turnover already.
To optimize your retirement accounts, experts recommend investing in both a 401(k) and an IRA in the following order: Max out your 401(k) match: The 401(k) is your top choice if your employer offers any kind of match. Once you receive this maximum free money, consider investing in an IRA.
With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.
Mutual funds and ETFs hate cash, because they're a drag on performance. Investors do need to understand the importance of risk management when buying individual securities.” Oddly, it's the fixed income asset class that presents the most unexpected risk.
Mutual funds are one of the most popular investment choices in the U.S. Advantages for investors include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
| Particulars | Short Term Investments |
|---|---|
| Duration | Up to three years |
| Interest Rate | Less sensitive to interest rate cuts |
| Returns | High returns when compared to traditional savings schemes |
| Risk | Low risk when compared to long term investments |
Portfolio Diversification
When you invest in a single stock, you get exposure to the domain that the company operates. For example, if you buy stocks of a technology firm, your exposure is limited to that sector itself. On the other hand, when you invest in a mutual fund, your money is spent in diverse sectors.
- Understand your risk capacity and risk tolerance. ...
- The next step is asset allocation. ...
- Then you should identify the funds that invest in each asset class. ...
- Decide on the mutual fund schemes you will be investing in and make the application online or offline.
There is no best time as such for investing in mutual funds. Individuals can make investments in mutual funds as and when they wish. But it is always better to catch the funds at a lower NAV rather than higher price. It will not only maximise your returns but also lead to higher wealth accumulation.
Good Average Annual Return for a Mutual Fund
For stock mutual funds, a “good” long-term return (annualized, for 10 years or more) is 8% to 10%. For bond mutual funds, a good long-term return would be 4% to 5%. For more precise, “apples to apples” comparisons, use a good online mutual fund screener.
How much should I be investing?
The sweet spot, according to experts, seems to be 15% of your pretax income. Matt Rogers, a CFP and director of financial planning at eMoney Advisor, refers to the 50/15/5 rule as a guideline for how much you should be continuously investing.
| Fund Name | Category | 1Y Returns |
|---|---|---|
| Invesco India Infrastructure Fund | Equity | 18.6% |
| Axis Midcap Fund | Equity | 9.3% |
| Axis Growth Opportunities Fund | Equity | 9.1% |
| Mirae Asset Emerging Bluechip Fund | Equity | 7.4% |
If you wish to get aN inflow of about Rs 5,000 per month, you would need to invest at least Rs 7.5 lakh. For this maintain an asset allocation of 70 per cent debt and 30 per cent equity.
Although not all funds pay interest, some of the ones that do invest primarily in vehicles that will pay interest to them, which they then disseminate to their investors. Interest paid by mutual funds can be called a distribution and if it is paid out is usually paid out quarterly or yearly.
| Funds Name | Returns(%) | |
|---|---|---|
| HDFC Hybrid Debt Fund | -2.04 | 5.06 |
| ICICI Prudential MIP 25 | 4.7 | 7.7 |
| ICICI Prudential Monthly Income Plan | 5.5 | 9.1 |
| Invesco India Regular Savings Fund | 5.7 | 6.9 |
| Fund Name | 3-year Return (%)* | |
|---|---|---|
| PGIM India Flexi Cap Fund Direct-Growth | 23.91% | Invest |
| SBI Focused Equity Fund Direct Plan-Growth | 16.07% | Invest |
| Mirae Asset Emerging Bluechip Fund Direct-Growth | 20.63% | Invest |
| Axis Bluechip Fund Direct Plan-Growth | 13.77% | Invest |
| Top Performing Funds Of 2021 | |
|---|---|
| Scheme | Return (%) |
| Quant Small Cap Fund | 88.05 |
| Quant Infrastructure Fund | 83.22 |
| L&T Emerging Businesses Fund | 77.41 |
| Rank | Fund | 1-year return to 1 July (%) |
|---|---|---|
| 1 | Fundsmith Equity | 24.4 |
| 2 | Vanguard LifeStrategy 80% Equity | 18.6 |
| 3 | Baillie Gifford American | 61.9 |
| 4 | Vanguard LifeStrategy 60% Equity | 13.4 |
Mutual funds do not guarantee returns. Also, mutual funds have an element of risk. Simply put, they do not offer risk-free higher returns. If you want higher returns, you should be able to take some risk.
Mutual fund shares are priced once the market closes every day at 4 p.m. unlike stocks, which trade on an intraday basis. Once the closing bell rings, the net asset value (NAV) of each mutual fund is calculated. With most redemptions, the proceeds are distributed to the investor on the following business day.
Is a mutual fund taxable?
Distributions and your taxes
If you hold shares in a taxable account, you are required to pay taxes on mutual fund distributions, whether the distributions are paid out in cash or reinvested in additional shares. The funds report distributions to shareholders on IRS Form 1099-DIV after the end of each calendar year.
How to Invest for Retirement at Age 60 the Right Way. One of the best ways to invest for retirement at age 60 is through an IRA, 401(k), or a combination thereof. All of these will allow you to save more money over time. And, you can use tax-free and tax-deferred advantages to pay less to Uncle Sam.
No investment is entirely safe, but there are five (bank savings accounts, CDs, Treasury securities, money market accounts, and fixed annuities) which are considered the safest investments you can own. Bank savings accounts and CDs are typically FDIC-insured. Treasury securities are government-backed notes.
Bond Mutual Funds
The three types of bond funds considered safest are government bond funds, municipal bond funds, and short-term corporate bond funds.
Looking from a long term perspective, money market mutual funds produce an average returns between 3% and 4% per year. Over the recent years, money market mutual funds could hardly give any returns and they could produce close to zero percent earnings over the investments made.
It is crucial to implement 50:30:20 rule in your financial plan. One should invest at least 20% of their salary in mutual funds and can later increase whenever possible.
You can earn a monthly income from Mutual Funds either by investing in the Dividend Option of a mutual fund scheme or by opting for an SWP in a mutual fund scheme. SWP is a better option to seek regular income as it is more tax-efficient and guarantees you a certain amount at the end of the month.
The fund manager does all the investment, tracking and management on your behalf which makes you a passive investor. So if you are new to stock investing and don't want to spend a lot of time on stock analysis, then mutual funds are the best option for you.
Money in mutual funds grows in a manner similar to gold or property. You buy a unit (10 gms of gold, or 1 apartment) for a specific price. After a few years, the price increases (or decreases) and you sell it for a different price. The difference between sale price and purchase price is your return.
Many experts project that between 8 and 10 percent average growth is normal and attainable. According to Kiplinger magazine, three growth stock mutual funds that stand out with good returns over the last 10 years are Fidelity Contrafund, Fidelity Low-Price Stock Fund and T-Rowe Price Small Cap Value.
How much can a mutual fund grow in 10 years?
Equity mutual funds have given around 15-20% annualised return in the past 10 years.
Equity mutual funds have the potential to deliver an annualized return between 11% to 14% over a long period. Assuming an annual return of 11%, you will be able to build a corpus of around Rs 19.5 lakh after 10 years. However, you need to be disciplined with your investments.
- Axis Bluechip Fund.
- Mirae Asset Large Cap Fund.
- Parag Parikh Long Term Equity Fund.
- UTI Flexi Cap Fund.
- Axis Midcap Fund.
- Kotak Emerging Equity Fund.
- Axis Small Cap Fund.
- SBI Small Cap Fund.
You can invest in mutual funds offline or online through a mutual fund house or an intermediary (broker). You may also invest in mutual funds through an online platform such as cleartax invest. Select the amount you plan to invest in the mutual fund and the mode as One Time to invest Rs 10,000 in mutual funds.
If you wish to get aN inflow of about Rs 5,000 per month, you would need to invest at least Rs 7.5 lakh. For this maintain an asset allocation of 70 per cent debt and 30 per cent equity.
You can withdraw money from a mutual fund scheme through a broker or distributor if you invested through them. You can make contact with your broker and request a withdrawal. You must fill out and submit a withdrawal request form if you wish to make a withdrawal offline.
Although not all funds pay interest, some of the ones that do invest primarily in vehicles that will pay interest to them, which they then disseminate to their investors. Interest paid by mutual funds can be called a distribution and if it is paid out is usually paid out quarterly or yearly.
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.
Mutual funds have sales charges, and that can take a big bite out of your return in the short run. To mitigate the impact of these charges, an investment horizon of at least five years is ideal.
