Mutual Funds

Whether you are a novice investor or consider yourself an accomplished market-player, you should park some or a large part of your investments in mutual funds. Mutual funds are handled by fund managers, who are professional and who know how to time and invest in the markets and churn the stocks so that they minimize losses and maximize returns on investment for the unit holders. However, fund managers and therefore mutual funds are still subject to market ups and downs, so mutual funds can also underperform or outperform the markets.

You are putting in your money so it is up to you to put your research in place as to which kind of mutual fund is right for you. You cannot simply blindly invest in any fund, no matter what the brand name attached to it. Firstly you have to select from the wide range of mutual funds in India. These include open-ended, closed-ended, equity, debt, sectoral, diversified, index, mix-cap or small-cap, tax saver and many more. Then you have to decide the amount you want to invest and in how many funds - this can depend a great deal on your financial goals. Here are some do's and don'ts of investing in mutual funds.

The do's

• Research various funds and instruments before putting your money down and see the average returns the funds have generated.
• Factor in all the money you have to put in including fees, brokerage and taxes.
• See the track record of the fund in the long-term (if it is a new fund, check out the track record of the company).
• Diversify and keep money in different funds.
• Use a systemic investment plan for mutual fund units.
• Regularly monitor your mutual fund investments.

The don'ts

• Put all your money in one or two funds.
• Be blind to market risk, specially in a volatile market.
• Focus only on short-term gains - often the extra expenses incurred will pare these gains considerably.
• Ignore risks completely - check the best three and worst three months returns of any particular fund to get an idea of the kind of the potential risk-reward situation.
• Try to time the market - if you buy high you may have to sell low or your returns won't be as good.
• Buy and sell your units often.

It is crucial that you have investment plans for any spare money that you have, otherwise your money will simply depreciate due to inflation. If you invest at the right time and the right amount in the right funds, you can look forward to good returns on your investments.

Investing is complicated for many people. The fact that no one knows what the market will do from one day to the next allows for many so-called experts to provide their opinion on where the market it headed. Simply search the term "investing strategies" and you will find over 10 million results. Yes, 10 million.

It's no wonder then why most people chose to do nothing as opposed to something when it comes to investing. The classic "analysis paralysis" comes into play. The question is how can you make investing simple? Below is how I go about investing. My approach is fairly simple.

I don't watch the market every day. I don't make that many trades in a year (in fact, if I checked, I am certain the number would be under 20). I don't try to find the "next big thing" either. I don't care about any of this.

Why I Don't Analyze The Stock Market

Why don't I care? I have two reasons:

• I don't want to spend my free time analyzing investments
• If you look back at the beginning of this article, I have no clue where the market is going tomorrow

Let's look at each one of these in more detail. First, I value my time. I like to golf and ride my mountain bike. I like spending time with my friends and family. If I spent every weekend researching stocks, I would have less time to do the things I love to do. Plus, my performance is doing just fine with how I invest (more on this later).

Next comes the issue of not knowing where the market is going. Why would I want to spend my free time analyzing stocks to invest in if tomorrow there is a 50/50 chance the market will go up?

Simple Steps To Investing Success

So here is how I invest and keep things simple. First, I pick low-cost investments. I am a firm believer in passive investing. I'm not paying a professional fund manager money when he or she can't consistently beat the market every year. I'll just take what the market gives me.

Next, I invest money into the market every month, regardless if the market is up, down or sideways. To me, it doesn't matter. I'm investing for the long-term so the daily fluctuations don't matter to me. Though I do get excited when the market drops and I can pick up more shares.

Finally, as I just mentioned, I stay invested for the long-term. This is vital to being a successful investor. If you are looking to make money in the short-term, you shouldn't be in the stock market. It's too volatile over the short-term. But the long-term on the hand is another story. Over the long-term, the stock market trends up. If you are looking to make money over the long-term, the stock market is for you.

Final Thoughts

Overall, investing is simple. You just have to know to ignore all of the advice you hear every day with regards to investing. All of this conflicting advice makes many people think that investing is too complicated. It really isn't. If you break it down into a few simple, important steps, you will find success with investing.

I've used this method for investing for the past 16 years. That includes 2 wars, 2 recessions and major bubble bursting. I started out with $20 per paycheck into a 401k. I've since added a few other accounts and am now closing in on a million dollars. How did I do it? By keeping things in perspective and looking at the long-term when it comes to investing.

In recent times we have heard a lot about the growing trend in Mutual Funds and the need to invest in such funds for financial security, but most times we have only a vague idea of what this really means. Well it's time to shed more light. What are mutual funds and why is it worthwhile for us to make investments in these funds? Let us shed some light on these questions.

A mutual fund is an investment solution that allows you invest in different asset classes like treasury bills, bonds, stocks and fixed deposits.

Normally, for an individual investor to be able to play at this high investment level, a lot of capital is needed as well as strong financial knowledge. Mutual funds make it easier & possible.

Now, there is so much financial jargon thrown around that you should understand a bit about, especially if you are a first time investor. So we decided to help educate you

1. Treasury Bills: These are short-term Federal Government backed debt instruments used by the Government to control money supply in the economy. As such, they can be considered as a short-term "loan" to the Federal Government. They are issued every week and these bills are usually for a 91-day tenor with options of a rollover.

2. Bonds: These on the other hand are long-term debt instruments usually with a maturity of 3 years. Generally, a bond is a promise to repay the principal along with interest on a specified date (maturity). The Federal Government, states, cities, corporations, and many other types of institutions sell bonds. Some bonds do not pay interest, but all bonds require a repayment of principal.

3. Stocks: This is when a share of a company/institution/organization is held by an individual or group. Companies raise capital by issuing stocks, and entitle the stock owners (shareholders) to partial ownership of the corporation. Stocks are bought and sold on what is called an Exchange, such as the Nigerian Stock Exchange or the New York Stock Exchange.

4. Fixed Deposits: This is a deposit held by a bank or any other financial institution for a fixed amount of time agreed upon by both parties (the bank and the investor). In exchange for not withdrawing the money during the agreed-upon period of time, the bank pays the depositor an amount of interest than is typically better that what would have been earned from a standard savings or current account deposit.

5. Diversification: This is the allocation of funds across a number of unrelated asset classes to minimize your exposure to risk. It's a bit like not putting all your eggs in one basket.

6. Asset Classes: These are significantly different investments, and some examples include stocks, bonds, real estate, commodities, precious metals or collectibles.

7. Diversified Portfolio: This is one that is exposed only to specific market risks within certain asset classes and includes a variety of significantly different asset classes. This is almost likened to a portfolio that invests in asset classes that complement each other, are not alike and do not relate. An example is Real Estate, Oil & Gas and Mining.

Mutual funds allow investors to pool in their money for a diversified selection of securities, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more.

Whether the objective is financial gain or convenience, mutual funds offer many benefits to its investors. Mutual Funds help investors generate better inflation-adjusted returns, because while most people consider letting their savings 'grow' in a bank, they don't consider that inflation may be nibbling away its value.

Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. Most stock options require significant capital, which may not be possible for young investors who are just starting out. Mutual funds, on the other hand, are relatively less expensive.

Maybe you won't find the single best mutual fund investment for 2015, but you can get hooked up with some of the best funds around if you know what to look for. We're talking about both the stock and bond variety here, and if you think that the best funds for 2015 will be those with the best mutual fund investment management team - think again.

These packaged investments are large professionally managed portfolios of securities (like stocks and bonds) where investors pool money by buying shares. They all charge for their services and claim to offer great service and some of the best funds around. Some tout past investment performance, claiming to have the best mutual fund investment team in the business. In the years leading up to 2015, you might be surprised to learn what the best funds really were.

Over the years a few things have become abundantly clear. One of them is the fact that the best mutual fund investment one year is rarely the best the next year. In fact it is often a disappointment, and sometimes the big loser. This is partly because of changing market conditions. For example, when high-tech stocks are hot the aggressive growth sector often sports the best funds in terms of total return. When these stocks sell off all competitors in the sector take a hit while the most aggressive (often previous top performers) get hardest hit.

Another reality is that no investment company has a track record for outperforming the competition on a consistent basis. Even the best mutual fund investment managers have years when they actually under-perform their benchmarks. Then, there's a matter of the stock category vs. the bond category for any given year. Simply put, in a bull market the best funds will more than likely be those that invest in stocks. In a bear market the best funds are most often those that invest in bonds.

Looking at 2015 and beyond, picking the best mutual fund investment will be a challenge because both stocks and bonds have recently hit new highs. No one knows for sure which of the two will be the best funds. Neither you nor professional money managers can predict the markets with accuracy. But you can control one major factor that directly affects both fund performance and your net returns for 2015 and beyond: the cost of investing.

The best funds for the past few years have been no-load "index funds". These are passively managed to simply mimic the performance of major stock and bond indexes vs. trying to outperform them. Since time has vindicated the fact that actively managed funds DO NOT significantly outperform over the longer term, why pay an upfront sales charge (load) of 5% (or more) to invest, and/or 2% or more in ongoing expenses and fees every year for active management? The best mutual fund investment keeps costs low, and never underperforms its benchmark, which is an index.

The cost of investing can be less than ½% per year for expenses. Period. Now let's get more specific about the best funds for 2015 and beyond. The best mutual fund investment for stocks: one with no load (sales charge) that tracks a major stock index like the S&P 500 Index. This will perform right in line with the market as measured by the same index that actively managed competitors try to beat (and usually can't due to their high cost of active management).

The best mutual fund investment in the bond arena: one with no load and mid-to-high quality that tracks an intermediate-term bond index. Think of bond funds (which people buy for the dividend income) like this: if you pay a 3% load (sales charge) upfront to buy it and 1% a year for active management fees... if your fund earns 3% a year in dividends you net only 2% a year and lose money the year you buy it if the share price remains unchanged.

The best funds for 2015 and beyond are of the no-load index variety. They never have a bad year relative to the market, and never under-perform their benchmark. Their low cost of investing directly increases your net return. That makes them the best mutual fund investment for your money in 2015 and well beyond.