If you have decided to invest a part of your savings in mutual funds, and you are doing it the first time, remember that like all other investments, mutual funds are subject to risk. If you are at a particular stage of your life where you cannot risk your money, then, either keep out of mutual funds or keep it to the minimum. Returns on mutual funds are not steady. Like investing in company stocks, mutual funds’ value can go up or down depending upon the fund’s portfolio.
Returns on mutual funds depend on the fund managers and is mostly regulated by law. That will give you some protection on where your money is invested, but should the money invested through the mutual fund is lost, you too stand to lose. In other words, mutual funds are not guaranteed as to interest or for getting a fixed rate of return. You can minimize this risk, where minimum returns are assured, but to a great extent that depends upon the laws of the country in which you reside and invest.
Your long and short term goals are important if you propose putting your money into mutual funds. There are at least two types of people who invest in mutual funds; those who look towards booking short time profits with borrowed money and those with owned money who look toward a steady improvement in value over a long period. Short time investment with a view to booking profit, need big investments to be sustainable, and for that you will have to borrow money at a price. Making short time profit also means keeping a steady watch on way prices move, and unless you are a financial wizard it is not for you. It is not uncommon to see even veteran investors going broke over unwise decisions.
Never put all your eggs in the same basket. Keep a portfolio with a multitude of mutual funds. Like investors, mutual fund managers invest in specific types of industry or in turn invest into other mutual funds as well. To know the risk you need to know the niche in which your fund managers operate. If your mutual fund manager is primarily into buying and selling in the metal industry, then, keep a watch on where the metal industry is heading. Even the slightest hint of the industry performing poorly should be enough warning to reorganize your portfolio.
Since you will be mostly buying and selling mutual fund like any other stock, you will have to pay your brokers substantial fee for the services. If you propose buying and selling on the same day, commonly called intraday trading, you will be required to leave an upfront fee. There is also some money that you have to keep with your brokers for covering losses arising out of lower selling rates to cover losses. When you decide when to sell and how much to see, take all expenses into consideration to know where you stand.
As a long term investor, you will not have to go through the ordeal of buying and selling on a day to day basis. You can invest in mutual funds that are conservative and don’t take too much of risk upon themselves. Select these types of mutual funds if you cannot afford any big loss.
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