Top Performing Mid Caps. Learn Ask the expert. Fund Basics. ETF Latest Price. Most Consistent NPS schemes. Schemes with highest change in AUM. Category Average Returns. Tools Mutual Fund Screener. AMC Branch locator. Mutual Funds Events. MF Recategorization. Top AMCs. Top Performing Schemes. Top Star Rated Schemes. Let's reshape it today. Corning Gorilla Glass TougherTogether. ET India Inc. ET Engage. ET Secure IT. MF News. Analysis Best Mutual Funds to Invest.
Mutual Funds for Short-Term Goals. Mutual funds for children. Fund Recos. Category Review. Top Tax Saver Funds. Low Cost High Returns. Best Large Cap Funds. SIP Starting Rs. Top Performing Mid Caps. Learn Ask the expert. Fund Basics. ETF Latest Price. James Royal. Written by. Bankrate senior reporter James F. Royal, Ph. Edited By Brian Beers. Edited by. Brian Beers. Brian Beers is the senior wealth editor at Bankrate.
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Read more From James. About our review board. You may also like Best ETFs to buy in Before investing in any fund, you must first identify your goals for the investment. Is your objective long-term capital gains , or is current income more important?
Will the money be used to pay for college expenses, or to fund a retirement that's decades away? Identifying a goal is an essential step in whittling down the universe of more than 8, mutual funds available to investors. You should also consider personal risk tolerance.
Can you accept dramatic swings in portfolio value? Or, is a more conservative investment more suitable? Risk and return are directly proportional, so you must balance your desire for returns against your ability to tolerate risk. Finally, the desired time horizon must be addressed. How long would you like to hold the investment? Do you anticipate any liquidity concerns in the near future?
Mutual funds have sales charges, and that can take a big bite out of your return in the short run. To mitigate the impact of these charges, an investment horizon of at least five years is ideal. The primary goal for growth funds is capital appreciation. If you plan to invest to meet a long-term need and can handle a fair amount of risk and volatility, a long-term capital appreciation fund may be a good choice.
These funds typically hold a high percentage of their assets in common stocks and are, therefore, considered to be risky in nature. Given the higher level of risk, they offer the potential for greater returns over time. The time frame for holding this type of mutual fund should be five years or more.
Growth and capital appreciation funds generally do not pay any dividends. If you need current income from your portfolio, then an income fund may be a better choice.
These funds usually buy bonds and other debt instruments that pay interest regularly. Government bonds and corporate debt are two of the more common holdings in an income fund.
Bond funds often narrow their scope in terms of the category of bonds they hold. Funds may also differentiate themselves by time horizons, such as short, medium, or long term.
These funds often have significantly less volatility, depending on the type of bonds in the portfolio. Bond funds often have a low or negative correlation with the stock market. You can, therefore, use them to diversify the holdings in your stock portfolio.
However, bond funds carry risk despite their lower volatility. These include:. However, you may want to include bond funds for at least a portion of your portfolio for diversification purposes, even with these risks.
Of course, there are times when an investor has a long-term need but is unwilling or unable to assume the substantial risk. A balanced fund , which invests in both stocks and bonds, could be the best alternative in this case. Mutual fund companies make money by charging fees to the investor. It is essential to understand the different types of charges associated with an investment before you make a purchase. Some funds charge a sales fee known as a load.
It will either be charged at the time of purchase or upon the sale of the investment. A front-end load fee is paid out of the initial investment when you buy shares in the fund, while a back-end load fee is charged when you sell your shares in the fund.
The back-end load typically applies if the shares are sold before a set time, usually five to ten years from purchase. This charge is intended to deter investors from buying and selling too often. The fee is the highest for the first year you hold the shares, then dwindles the longer you keep them.
Front-end loaded shares are identified as Class A shares, while back-end loaded shares are called Class B shares. Depending on the mutual fund, the fees may go to the broker who sells the mutual fund or to the fund itself, which may result in lower administration fees later on.
There is also a third type of fee, called a level-load fee. The level load is an annual charge amount deducted from assets in the fund.
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