Going Global through Mutual Funds

There are more than 13500 different publicly traded companies in the world today, and there are over 700 more companies expected to go public within a year. In addition, every major developed country offers investors various bonds to invest in. All of this makes for a lot of different investments and plenty of choice. Investors can take advantage of this choice through a good global balanced fund that invests in bonds and stocks or a global equity fund that invests in stocks all around the world.

A global equity fund invests in stock markets around the world. These funds will have a portion of their investments invested in North America. Europe, and Asia. Some of these funds will own hundreds of securities in order to participate in the growth prospects of many firms while diversifying the risk associated with investing in different companies. A good global equity fund will be a foundation for a well-diversified mutual fund portfolio for almost any investor. Investors could consider including the AGF International Value Fund, the BPI Global Equity Fund, or the Fidelity International Portfolio Fund in their portfolios.

A global balanced fund is a fund that invests in both stock and bond markets around the world. These funds will also always have a portion of their investments invested in stock and bond markets located in North America, Europe, and Asia. They are more conservative than global equity funds because they invest in a combination of stocks and bonds, which affect the fund's performance. Over the long term these funds will provide a lower rate of return for investors but they will also exhibit a lot less risk than a global equity fund. They exhibit less risk because bonds are less volatile than stocks; they do not decline in value to the same magnitude or at the same time as global equity funds. A conservative investor should find a good global balanced fund that will serve as a good foundation for a diversified portfolio.

Tony Reed is the author of "Going global through mutual funds", please visit his website Mutual Funds & Stock Trading for more information.

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What are No-load Mutual Funds?

No load mutual funds are mutual funds whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale.

Since there is no cost for you to enter a no-load fund, all of your money is working for you. If you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a commission of 5% upon purchase, the amount actually invested in the fund is $9,500. If both funds return 10%, the no-load fund would have grown to $11,000 while the loaded fund only rose to $10,450.

The major idea behind a load fund is that you will make up what you paid in commissions with the solid returns that the managers will provide. However, most studies show that loads don't outperform no-loads.

Most load mutual funds are sold through brokerage houses, financial planners, and people known as "Registered Representatives." With very few exceptions, most of these people operate on the basis of selling as many fund shares as possible. Their commissions are collected up front, as a back end charge, or both. Whether you make money or lose it isn't their primary concern. What matters most to these folks is how often you buy (and generate new commissions for them).

No load funds have traditionally been marketed directly by the mutual fund companies themselves. But today, more and more funds are being offered through discount houses like Fidelity, Schwab, and a host of others. The advantage to this is that you have an unlimited choice of mutual funds in one place. You don't have to open a separate account for each mutual fund family that you purchase.

Most fee based investment advisors have independent relationships with the major discount firms. They're able to offer clients just about any no load mutual fund that is available. They receive no commissions from the firm and only get paid by the client according to a pre-determined fee arrangement. Under this type of arrangement, there's no hidden agenda to try to sell you a particular mutual fund in order to earn a larger commission.

It is best to stick with no-load or low-load funds, but they are becoming more difficult to distinguish from heavily loaded funds. The use of high front-end loads has declined, and funds are now turning to other kinds of charges. Some mutual funds sold by brokerage firms, for example, have lowered their front-end loads to 5%, and others have introduced back-end loads (deferred sales charges), which are sales commissions paid when exiting the fund. In both instances, the load is often accompanied by annual charges.

On the other hand, some no-load funds have found that to compete, they must market themselves much more aggressively. To do so, they have introduced charges of their own.

The result has been the introduction of low loads, redemption fees, and annual charges. Low loads--up to 3%--are sometimes added instead of the annual charges. In addition, some funds have instituted a charge for investing or withdrawing money.

Redemption fees work like back-end loads: You pay a percentage of the value of your fund when you get out. Loads are on the amount you have invested, while redemption fees are calculated against the value of your fund assets. Some funds have sliding scale redemption fees, so that the longer you remain invested, the lower the charge when you leave. Some funds use redemption fees to discourage short-term trading, a policy that is designed to protect longer-term investors. These funds usually have redemption fees that disappear after six months.

Probably the most confusing charge is the annual charge, the 12b-1 plan. The adoption of a 12b-1 plan by a fund permits the adviser to use fund assets to pay for distribution costs, including advertising, distribution of fund literature such as prospectuses and annual reports, and sales commissions paid to brokers. Some funds use 12b-1 plans as masked load charges: They levy very high rates on the fund and use the money to pay brokers to sell the fund. Since the charge is annual and based on the value of the investment, this can result in a total cost to a long-term investor that exceeds a high up-front sales load. A fee table is required in all prospectuses to clarify the impact of a 12b-1 plan and other charges.

The fee table makes the comparison of total expenses among funds easier. Selecting a fund based solely on expenses, including loads and charges, will not give you optimal results, but avoiding funds with high expenses and unnecessary charges is important for long-term performance.

Copyright 2006 Michael Saville

Michael Saville has over twenty five years experience in providing finance and investment advice. He has written a free five-part short course on 'no load mutual funds' which is available at http://www.buy-mutual-funds.com

Mutual Funds and Their Risks

Investing in mutual funds is a relatively safe way of growing your net worth, but such investments are not entirely free of risks. Before you pick on any particular mutual fund for investment you should watch out for a few things.

Performance

The first thing you should look for is whether the mutual fund you are planning to invest in is outperforming or under-performing with respect to the market. Good and safe mutual funds are those that consistently outperform the market. Changes in the net asset values (NAVs) of such mutual funds are consistently one step ahead of the market. For example, if the index that measures market movements goes up, the NAV of most good and safe mutual funds will also move up at least as much as the market or even more than the market. On the other hand, when the market moves southwards, the NAV of most good and safe mutual funds will move down but such depreciation will be less than or at the most equal to the market’s downward movement. Unsafe or risky mutual funds are those where the opposite occurs – when the market moves up, the NAV of risky or unsafe mutual funds may move up less than the market and may even move down despite a bull run in the market. Such under-performing mutual funds should always be eschewed when taking an investment decision.

Churn and earn

The next thing to watch out for is whether the mutual fund is undergoing too much “churn and earn”. This means you have to check whether too many transactions by the mutual fund are resulting in higher fees or costs to the investor. In this context, the worst offenders are those mutual funds that have a lot of spurious churn. Every time a mutual fund buys or sells stocks, the broker or brokers it employs make a neat pile from the commissions. So, these brokers try to encourage a lot of churn or buying and selling of stocks by giving a kickback to the mutual fund manager. Although direct bribery is illegal, payment of soft money through a sponsored trip to Hawaii or letting the mutual fund manager have a swanky Wall Street office for $1 a month is not. The only loser in all this spurious churn is the investor, especially in cases where the small print says that the investor will have to pay the brokers’ fees as well.

Lack of clarity

Mutual Funds that have prospectus, annual reports or statements of additional information written in such a way that they are difficult to understand should also be avoided. The lack of clarity in their documents is almost a sure sign of lack of honesty in their dealings or a lack of competency in managing funds – both of which are strong reasons for avoiding them for investment purposes.

Risky and unsafe mutual funds are also characterised by having too many restrictions on how and when investors can sell or redeem their mutual fund shares. Mutual funds that have too long lock-in periods or those which slap a hefty exit load at the time of redemption should be eyed with suspicion and are likely to prove to be unsafe and risky.

Beware of scams

Finally, there are mutual funds that are outright scams. There have been reports of fund mangers selling stocks at prices other than what has been reported to the investor. For example, the fund manager may have sold stock at prices that prevailed before closing of the day’s trade although the investor is told that the transaction took place at closing prices which were lower. The manager then pockets the difference and with most such transactions involving large volumes, even a fractional price difference can lead to substantial gains for the manger. Again the only loser in all this is the investor who gets short-changed by the mutual fund operator!

Jason Hanson recommends you contact the Law Firm of Richardson, Patrick, Westbrook, and Brickman if you need a mutual funds attorney.

Mutual Funds are not Investments

Mutual funds simply are a method through which people invest. People often asking, "What are mutual funds paying?" The truth is that mutual funds don't pay anything! People also say, "I don't like mutual funds because they're risky." But there's no such thing as a "risky" fund. Nor has anyone ever lost money in a mutual fund. Mutual funds are not good, and they're not bad.

A mutual fund, in fact, is merely a mirror - a reflection of something else. Thus, if you invest in a mutual fund that invests in stocks, and you are as likely to make money or lose money as any other person who invests in stocks.

In fact, you can use mutual funds to buy virtually any kind of investment: stocks, bonds, government securities, real estate, gold and other precious metals, international securities, foreign currencies, natural resources, even hedge positions and money markets. You can find funds that engage in virtually any type of trading activity, including options and futures contracts, derivatives, and even selling short.

Technically, mutual funds are called "open-end" investment companies because they forever buy and sell their shares. In industry jargon, mutual funds "sell" shares to the public, and when you want your money back, the fund will "redeem" them for you.

 Tony Reed is the author of " Mutual funds are not investments", please visit his website Mutual Funds & Stock Trading for more information.

This article is free for republishing as long as you leave the article title, author name, body and resource box intact (means NO changes) with the links made active.

Facts about Mutual Funds

Ok......., today we are going to talk about something most readers are concerned about. If I have extra money, where should I put my money? Mutual fund or unit trusts is always a popular option among beginners.

What is actually mutual fund? American uses mutual fund but a lot of Asian countries such as Malaysia and Singapore, our people here call it unit trusts.

Actually the concept is simple, a co-operation or company with a few what they claim themselves as " expert investors" set up a fund where you put your hard earned money, they promise they would invest these monies for you in stock market, bond , property or even money market. They are supposed to help you to earn extra money and the returns they get are management fees and transaction fees. A lot of laymen like you and me are very interested to invest but we just do not have the time to follow the stock market and we hardly have any idea which stock to buy since that your country may have one thousand and one hundred stocks available. So these people provide you a better choice, they would help you to monitor the market and they claim that they can do better than the average stocks returns.

These people whom they call themselves as fund managers are usually equipped with a degree in business or commerce. They have vast experience in investment. You may wandering, since that they know how to invest, why they are willing to share this trick with other layman investors like you and me? The answer is simple, by 'helping' you to invest, their income in guaranteed regardless of the market performance.

Why this thing is happening? Because we are paying them for the services. If you read through the prospectus carefully, they would state that no matter they are making money for you or not, every time you are buying the units, you have to pay up to 5-6.5% more the unit actual net asset value ( NAV). ( Malaysian Unit trusts figures). For an example, if there are 1000 units in a fund and these units worth RM1000, NAV of one unit is RM1, but they are selling to you at RM1.05 ( 5% higher). Besides making money like this,at the end of every financial year, they charge you managers' fees which can be up to 3% of the total NAV of units available. So are you surprised with the news that 80% of Malaysian who used their EPF money (compulsory retirement plan in Malaysia for workers, similar to 401k plan in US) to invest in unit trusts actually lost their money.

Now, you understand why all the bankers are making money every year regardless of the market. Can you imagine that you have entrusted your money to your 'friends' and hoping that they help you to get some returns and at the end of the day, they lose half of your money and the worst part, they are asking you to pay them some more because you are using their ' intelligence' to ' lose' your money in stock market/ bonds!

However, if you are lazy people and refuse to learn new thing, mutual fund is the ideal place for you to put money in long run. But I am always cautious about mutual fund, maybe there are a lot fund managers making money for you ( and making even more money for themselves) , there are also huge numbers of fund managers who do not make money for you! ( but they are still making money for themselves!)

When I stared my work about 4 years ago, I invested RM1000 after saving for 3 months( about US280) in one of the newly launched unit trust in Malaysia. After 4 years of waiting, they never announced any distribution ( dividend ) to me and the worst part is my investment is worth RM950 only nowa day ( plus 3-3.5% of inflation per year in Malaysia, I actually lost about 15% in that unit trusts in 4 years!). Recently I received their financial report about the fund, actually, they lost RM 32 million in previous year but we as unit trust holders still have to pay RM 3.2 million to the fund managers for their service!

If you are approached by an agent who promises one thousand and one things and tell you how good their mutual fund is, always remember my advice, read properly their prospectus and if possible, invest yourself rather than giving your money to them for them to help you to invest!

There are usually 3 types of mutual funds available in the market, high, intermediate ( medium) and low risk. A high risk mutual fund is a fund where the fund managers would put your money( remember 'your money' not their money')in investment vehicles such as stock market, hoping for higher returns. A medium risk mutual fund is a fund with mixed portfolios ( a combination of stocks and bonds) and usually they pay you certain income every year. A low risk mutual fund is a fund where all your money would be put in investment vehicles that pay you fixed income such as government bonds). You must remember that the agent always tell your that you need to ascertain your risk tolerance before deciding which type of mutual fund to buy because all these funds carry certain risk to your money. ( I always think that I am the one who takes out my money to invest and I have to carry some risks, the fund managers and the company never spend a cent to invest and they have "no risk", don't you think it is funny?)

More at www.young-investors.blogspot.com