Most individuals may not realize this, but investments are very important to assure financial stability for the present and the future. Money comes and goes like water, savings dry up, salaries and wages disappear just like that! It is a wise decision to invest your money on something worthwhile, something that will not only give you earnings but can become a considerable asset for the future.

A sound investment for beginners is mutual funds. A mutual fund is simply a firm that collects money from investors and invests them on stocks, bonds, and other money market instruments. If you invest in one, you will be considered a share holder and your portfolio will consist of a diverse investment.

Scandals

With all the recent scandals that surround investment companies, its no wonder people are so wary of mutual fund companies. The general population does not like being cockled out of their hard earned cash.

Financial firms are not in a habit of giving advice to small client. If the commission is high enough brokerage firms will recommend any mutual fund companies that looks legitimate without really minding the probable cost, profit or risk it may pose for the investor. Management condones these actions because the company will have high profit.

Are Any Of Them Trustworthy?

While trustworthy mutual fund companies are hard to find, there are a few who deliver what they promise. The important thing is to find a sound mutual fund company that is just as accommodating to the small investors as they are to their large clients.

Vanguard Mutual Fund Company, Fidelity Funds, American Funds, Franklin-Templeton Funds, and Hartford Mutual Funds are a few of the most reliable mutual fund companies in the industry today. They are very well known for their low cost, stable and well managed funds. In fact, Vanguard 500 index fund has the largest portfolio globally. Vanguard comes highly recommended by people from the financial business.

Fidelity Mutual Funds is considered as one of the most prevalent mutual fund companies, rivaled only by Vanguard and American Funds. The company is well known for its innovations, investing philosophies and their active take on seeking solution for retirement fund dilemmas.

Being one of the oldest mutual fund companies makes American Funds enjoy the top of the pecking order. Longevity, performance, and sales commissions have also helped in keeping its popularity at an all time high. American Fund has held up well despite speculations that its fame will mar its financial viability.

Performance growth and distribution of

When you investment your money in mutual funds, you earn profits in the form of dividends. Depending on the kind of mutual fund that you have, you may earn dividends and interests from your money throughout the year. If you investment a lot of money in mutual funds, there is a big possibility that you will earn a considerable amount of profit at the end of the year after all expenses and taxes have been deducted from your mutual fund dividends.

Why should you pay taxes for your mutual fund dividends? As a citizen or a resident of the country, our law says that you need to pay taxes on all income that you earn within and outside of the United States territory. Mutual fund dividends are considered as income so you need to give a portion of that income to the government in a form of tax.

Letting Your Money Grow

The general objectives of putting your money into mutual funds are to earn profit and to let your money grow. The best way to achieve these objectives is to reinvest your mutual fund dividends into your mutual fund account. Most mutual fund allow you to fork your earnings back into your portfolio so if you want to buy new shares and expand your investment, tell your financial manager to reinvest your money.

Can you avoid taxes if you reinvest your earnings back into your mutual fund portfolio? No, reinvesting your mutual fund dividends will not obliterate your financial obligations to the government. Note that you have already earned incomes when you were issued mutual fund dividends and that income is already taxable.

Tracking Down Your Investment Transactions

Good investors always know what is happening to their investments. It doesn’t matter if you only invested a small amount of money in mutual funds; you still need to keep track of your investment. To track your investment, you need to keep records of all your mutual fund transactions especially your mutual fund dividends. Keeping a record of your transaction is not really difficult because under the law, mutual fund companies are required to regularly send you a summary of all your transactions.

Mutual fund companies are also required to send you a summary of your transaction at the end of the year. The transaction statement will show all the activities of your portfolio for the including the number of shares that you bought or sold, the amount of money that you have investment and the amount of money that you earned in mutual fund dividends.

The mutual fund evaluator periodically checks how the mutual fund is doing. With so many funds entering the market it is important to take the advice of an evaluator for guidance. To facilitate the decision making of the evaluator, some guidelines are given below.

Integrity of Fund Sponsors

It is important for the mutual fund evaluator to check for any financial irregularities committed by the sponsors in the past. It is also essential to establish the track record in fund management and in terms of compliance. It is also important to know the composition of the fund management team. For the fund to be successful, the team has to be competent enough to take the right investment in changing market conditions.

In many funds, the investment philosophy depends on who the boss is. The chief investment officers define the investment policy. Normally, it should be the other way round. The mutual fund evaluator should ensure that the fund management has a philosophy which sustains even with change in people heading the fund. Such a philosophy will instill some stability in the minds of investors.

The mutual fund evaluator should also classify the funds into different categories to obtain maximum benefit. Keeping a track of a diversified portfolio can be quite a time consuming job, especially if the portfolio is composed of a number of mutual funds, stocks and bonds. The evaluator should refer to the mutual fund or stock ranking information available in major financial newspapers and publications. The evaluator should also consider checking the electronic media for ranking.

If some of the mutual funds have underperformed and is likely to slip in the near future, the mutual fund evaluator has to identify the reasons and if required advise the investor to bail out. Most funds have a compelling reason why they fail or succeed. Usually, it is strategy which determines its rise or fall. It is necessary for the evaluator to summarize the investment allocation status as part of the periodic review.

It may not be necessary to do a thorough summarization frequently, but simply comparing the percentage of total investments in each investment category with the target investment allocation will throw light on funds not doing too well. The evaluator should consider rebalancing the portfolio to return to the target investment plan. In a competitive scenario, the evaluator should be skilled in performance measurement and evaluation of funds to determine superiority among mutual funds.

Like any business, running a mutual fund involves costs too. These costs are in connection with maintaining transactions of investors such as purchases, exchanges and redemptions. Besides, in mutual fund expenses there are operating costs of the fund which are overall costs for maintaining the fund and not related to any one particular investor such as advisory fee, marketing and distribution expenses, brokerage fee, transfer agency fee, legal and accounting fee.

Fund Operating Expenses

For certain direct expenses, the investor is charged directly at the time of the transactions. These charges and fees are usually declared in a table in the fund prospectus. However, there are some mutual fund expenses which are operating expenses and happen at regular intervals, irrespective of the number of investors in a fund. These expenses are paid out of the fund assets and are mentioned in the fee table in the prospectus under the heading annual fund operating expenses.

Management fee is a part operating mutual fund expenses to cover administrative expenditure incurred on advertising, brokerage fee, telephone, printing, etc. Distribution fees are also mutual fund expenses paid for marketing and selling of fund shares, compensating brokers and agents who sell mutual fund shares, paying for sending mailers, prospectuses to probable new investors, and printing of sales literature. However, according to government regulatory agencies, these expenses cannot exceed a stipulated percentage of the funds average net assets per year.

Other mutual fund expenses not included in management and distribution fees are legal expenses, custodial expenses, accounting expenses, transfer age expenses and other administrative expenses. The total annual fund operating expenses are expressed as a percentage of the funds overall average net assets.

For a fund to perform and do well, the operating costs have to be low. Small differences in fees can exemplify into large differences in returns over a period of time. For example, in an investment of $10,000 earning an annual return of 10% before expenses which is 1.5%, then over a period of 20 years the return would be around $49,725. But, if the fund had a low operating expense of 0.5%, then the investor would end up earning $60,858. Even though the fees and other mutual fund expenses seem like a minor expense, they create a serious drain on the performance over a period of years. It should be clear that mutual fund costs and other fees are detrimental to investment returns.