{"id":8340,"date":"2020-08-31T15:03:35","date_gmt":"2020-08-31T09:33:35","guid":{"rendered":"https:\/\/www.fintoo.in\/blog\/?p=8340"},"modified":"2021-03-16T13:00:08","modified_gmt":"2021-03-16T07:30:08","slug":"the-five-secrets-you-never-knew-about-mutual-funds","status":"publish","type":"post","link":"https:\/\/blog.fintoo.in\/blog\/the-five-secrets-you-never-knew-about-mutual-funds\/","title":{"rendered":"The Five Secrets You Never Knew About Mutual Funds"},"content":{"rendered":"\n<p>Mutual funds are the instruments which are included in everyone\u2019s portfolio. It seems quite convenient for those who do not want to jump in stock market directly. Since mutual funds are professionally managed and fetch reasonable returns adjusted to risk appetite (as per the investment strategy of the fund), they have become investor\u2019s favourite, be it conservative or be it aggressive investor.<\/p>\n\n\n\n<p>However, there are some things which\nyou won\u2019t know while you still&nbsp;invest in mutual funds. Let\u2019s see what those\nare and what can be done to deal with their impact on your portfolio.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Top performing funds might be actually lagging behind<\/strong><\/h2>\n\n\n\n<p>It\u2019s a natural tendency to pick the\nbest of the alternative with lesser risk attached. Same applies to mutual funds\nselection also. There are various factors for evaluation and selection of&nbsp;mutual\nfund for investing, where performance is one of such basis. However, it is\ndifficult to time the market. One must learn to benefit from the ups and downs\nin the markets.<\/p>\n\n\n\n<p>When you look at historic performance\nof a fund, its out performance may be linked to bullish trends in market or may\nbe even concerned with seasonal upside trend in stocks which it holds in its\nkitty. So, when you judge any mutual fund by its past performance, keep in mind\nthe fact that great performance has to be checked in light of the prevailing\nmarket conditions, seasonal ups and downs, vital economic developments (like\nrepo rate cuts etc.)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Check out fund management charges<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"492\" src=\"https:\/\/www.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/Check-out-fund-management-charges-copy.jpg\" alt=\"Funds managemnet\"  srcset=\"https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/Check-out-fund-management-charges-copy.jpg 1024w, https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/Check-out-fund-management-charges-copy-300x144.jpg 300w, https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/Check-out-fund-management-charges-copy-768x369.jpg 768w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" class=\"wp-image-9369 no-lazyload\" \/><\/figure><\/div>\n\n\n\n<p>Expense ratio refers to the fund\u2019s\noperating costs divided by the fund\u2019s AUM. Expense ratio directly impacts the\nreturns which are received by the investors. Hence, even if the fund has\noutperformed the benchmark consistently, if it carries highest expense ratio\namong its peers, then it is better to look out for another fund with lower\nexpense ratio. <\/p>\n\n\n\n<p>The main point to be noted is that\nsuch costs are not appropriated towards profits made by the fund, but against\nthe corpus of the funds (capital invested by the investors). This takes out a chunk\nof the hard earned money of the investors and they will be impacted at higher\nrates where the expense ratio is higher.<\/p>\n\n\n\n<p>So next time, you choose an actively\nmanaged funds over index funds in view of higher returns, don\u2019t forget to check\nthe expense ratio which is much higher in case of actively managed portfolio\nthan index funds or passively managed fund.<\/p>\n\n\n\n<p>Must read: <a href=\"https:\/\/www.fintoo.in\/blog\/p-b-ratio-is-it-a-best-way-to-select-stocks\/\">P\/B ratio \u2013 Is it a best way to select stocks?<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Are you a fan of actively managed funds?<\/strong><\/h2>\n\n\n\n<p>Actively managed funds are those\nwhere the funds have their own investment strategy and standard benchmark.\nThese funds are comparatively costlier than index funds. Index funds are those\nfunds which stay invested in portfolio as along the lines of underlying index stocks.\nIn short, these funds mimic the index performance and hence aggressive\ninvestors would prefer actively managed funds than index fund. <\/p>\n\n\n\n<p>Reason behind the same being that\nthese investors already have direct equity exposure from the stock market\ninvestment. Hence, they would require something more than what index is giving\nthem.<\/p>\n\n\n\n<p>However, most of the investors fail\nto see that these actively managed funds are actually index funds with a fancy\nname and with higher expenses ratio. Hence, you must look at the asset\nallocation, portfolio distribution, beta of the fund, standard deviation of the\nfund to observe whether these are on similar lines of the index. If yes, then\nyou are paying more than what you should and it is time to switch to a cheaper\nand better option.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>ETF\u2019s and the mutual funds<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"492\" src=\"https:\/\/www.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/ETFs-and-the-mutual-funds.jpg\" alt=\"ETFs and Mutual FUnds\"  srcset=\"https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/ETFs-and-the-mutual-funds.jpg 1024w, https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/ETFs-and-the-mutual-funds-300x144.jpg 300w, https:\/\/blog.fintoo.in\/blog\/wp-content\/uploads\/2021\/03\/ETFs-and-the-mutual-funds-768x369.jpg 768w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" class=\"wp-image-9370 no-lazyload\" \/><\/figure><\/div>\n\n\n\n<p>ETF\u2019s trade at <a href=\"https:\/\/www.google.com\/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=&amp;cad=rja&amp;uact=8&amp;ved=2ahUKEwi67Jf5_KLvAhXUXCsKHVMyC44QFjAaegUIlQEQAw&amp;url=https%3A%2F%2Fen.wikipedia.org%2Fwiki%2FStock&amp;usg=AOvVaw3dYaN5hL5CzPgGEEcGrcwj\">stock <\/a>exchange at the real time rates, meaning that they are bought and sold at the prices which actually exist at the time of the transaction in the stock market. However, mutual fund units can only be bought and sold at the closing NAV prices. Due to this reason, ETF\u2019s can be day traded at a very profitable and lower cost.<\/p>\n\n\n\n<p>Also ETF\u2019s score more on the basis\nthat they are more liquid than the mutual funds. ETF\u2019s are also on low side as\nfar as the expense ratio is considered as compared to the mutual funds.<\/p>\n\n\n\n<p>Apparently, there are certain good secrets about mutual funds which may be helpful to achieve your long term investment goals. Also that they are much simpler and more reliable than actual stocks due to their professional management. So if you want to stick to&nbsp;mutual funds then start your investments. Keep in mind to diversify your investments in different types of mutual funds.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mutual funds are the instruments which are included in everyone\u2019s portfolio. It seems quite convenient for those who do not want to jump in stock market directly. Since mutual funds are professionally managed and fetch reasonable returns adjusted to risk appetite (as per the investment strategy of the fund), they have become investor\u2019s favourite, be [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":8410,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","footnotes":""},"categories":[95],"tags":[189,192,191],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Five Secrets You Never Knew About Mutual Funds - Fintoo Blog<\/title>\n<meta name=\"description\" content=\"There are certain good secrets about mutual funds which may be helpful to achieve your long term investment goals and more reliable than stocks\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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