Read the Devil in fine print before buying a mutual fund

Mutual Funds investment

Almost 90 per cent of the investors rely on mutual funds to grow their money. Every portfolio has a major portion occupied by mutual fund as it balances the uncertainties of other investments.

Mutual funds are companies who make diversified investments which have minimum rate of risk. One can invest as low as $1,000 in a mutual fund and see the money growing.

Mutual funds are surely a safer investment mode but one has to read the terms and conditions of any such offer before paying the money to the company. There are certain factors to be considered-

  • Potential fees

Mutual funds charge potential fees from the investors. Some who charge a higher fee and yield higher returns so fees alone should be not be the sole criteria to select a mutual fund. Investors should understand the overall impact of an investment before going for it.

  • Front end Load

A load is charged from the investor which is basically the sales commission. This is the amount charged from the investor when the first purchase is made.  This load may vary from 8.5% to 1%. Investors should be careful at this step as a considerable part of investment will go into paying the commission. The other term for this kind of load is “entry load”. This load is preferred by investments of larger amounts.

  • Back End Load

When a commission is charged ate the time of selling the mutual fund then it is regarded as Back end load or exit load. The load is quite step for a well performing mutual fund. For small investors it is always preferred to opt for back end load.

There are some mutual finds with no loads at all.

  • Trailer

Trailer is paid out of the money charged from the investors. An equity fund with management expense ratio of 2% will have to pay a trailing commission of half a per cent of that amount.

Mostly trailers are paid to the advisers. The advisers look into goal setting, fact finding, analysis, recommendations, implementation and monitoring.

Certified financial planners always work through these 6 points and help their clients choose the right mutual fund according to their needs and capacities

The investor should make any kind of investment with a prior knowledge. He should clear all the points with the company’s adviser or the financial planner for a “fool proof” investment.