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Esther.Dumbiri posted a topic in Investment Vehicles In NigeriaMutual funds are a good way for investors to build wealth but they aren’t completely risk free. With a mutual fund you get exposure to different industries without having to become an individual stock picker. But when it comes to mutual funds, not all of them end up being profitable. Choose the wrong one and you may face investment areas that erode your investment returns. With that mind, here are some mistakes to avoid when choosing a mutual fund for an investment. 1. Paying Too Much in Fees When it comes to mutual funds, investors are going to pay different fees depending on the fund they go with. Investors who don’t pay attention to fees could see their returns diminished as a result, even with a mutual fund. Some mutual funds pay brokers a commission for selling their product to investors. That commission, known as a front-end load can be up to 5% of invested assets and is usually charged upfront. A back-end load mutual fund is a fee you pay when you sell the fund. The longer you hold on to it the smaller the fee. A no-load fund has no commission associated with buying or selling the fund, and is often a good choice for mutual fund investors who want to minimize the fees they have to pay. 2. Chasing Past Performance For most people mutual funds could be a good way to build wealth but often investors will chase past performance in hopes of seeing the same returns. Far too often, investors will choose their mutual funds based on past performance without giving much thought to what the fund invests in and whether or not the exposure matches their risk tolerance and time horizon for investing. Sadly, past performance doesn’t mean future performance, and the fact that a fund did well one year or even over five years doesn’t mean it will continue to do so. While past performance can help narrow the playing field it shouldn’t be the only reason to choose a particular mutual fund. 3. Not Paying Attention to the Tax Implications Many investors will use take funds from their already taxed salaries and invest in mutual funds outside of non-retirement accounts, which could create a tax event if they are not careful. These tax events occur because if an investor chooses an actively managed mutual fund that has a high turnover rate, the investor could be on the hook for any gains. Typically, the mutual funds with higher turnover rates are going to generate more tax events of which investors have to be aware. Unfortunately, most mutual fund marketers would not tell you about this! 4. Holding the same investment via different mutual funds Many people think they can choose a mutual fund, invest in it and then forget about it without giving too much thought to the underlying investments in the fund. If you own only one mutual fund this may be acceptable, but if you have your investments spread out over different funds to get diversification then you are going to have to do some homework. You don’t want to hold the same investments in multiple mutual funds. The whole idea is to be diversified in different asset classes and industries, and if your mutual funds all hold the same stocks and/or bonds, then you aren’t diversified. A possible outcome is that if the market goes down, you are going to be positioned for a bigger blow without having your investments spread out.
RETAIL FUND What is a 'Retail Fund' A retail fund is an investment fund with capital invested by individual investors. Mutual Funds and exchange traded funds (ETFs) are common types of retail funds. BREAKING DOWN 'Retail Fund' Retail funds target the investing interests of individual investors. Closed-end mutual funds and exchange-traded funds are the two most common types of retail funds. These funds do not have share classes and are traded on the open market. Open end mutual funds collectively manage investments from both retail and institutional investors through various share classes. The majority of share classes in an open-end mutual fund are targeted for individual retail investors. Open-end mutual funds do not trade on exchanges with trades managed by the mutual fund company. Retail funds do not have specific investor requirements. In that way they differ from other fund offerings in the market that mandate certain investor requirements. Hedge funds and private market investments for example, may require that an investor be accredited with a specified net worth. Retail Fund Objectives Retail assets account for a significant portion of the market’s total investments. Investment companies offer a wide range of retail fund objectives across all types of asset classes for retail investors. To help investors better understand and analyze retail fund investments, Morningstar developed style boxes for both equity and fixed income funds. Style box analysis can help investors analyze and invest in retail funds with varying levels of risk and potential return. Retail investors can use style box analysis to develop a diversified portfolio of retail funds across multiple investing categories through a brokerage account. Retail Fund Investing Individual investors have a wide range of retail funds to choose from. While retail funds are open to all individual investors, they do have certain transaction costs and minimum investments that must be considered. Individual investors can invest in retail funds through various channels. Mutual funds are traded with the fund company or through an intermediary. Closed-end funds and ETFs can be traded in the open market through an intermediary. Investing through intermediaries requires careful due diligence. Investors will incur sales charges when transacting with full service brokers. Sales charges are determined by the fund company and outlined in a fund’s prospectus. They can range up to 6% of an investor’s investment per transaction. Discount Brokers are often a more cost-efficient way to trade mutual funds. Discount brokers often charge a transaction fee with each block trade. Fund companies work with all types of brokers to determine minimum investment levels required by an investor for investment.