They pretty much will tell you everything under the sky, but won’t tell you what you really want to hear. That is how Mutual Fund Managers are, were and will be because that is how they make money.
So it is important that you know about those things that your Fund Manager will be hiding from you. It is also essential that you know the right questions to ask him so that you are not overcharged.
The Two Big Lies
There are usually two things, about which a Fund manager either lies to you or hides from you. The first is about the actual costs involved and the second is the risks.
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Costs: There are several hidden charges when you enter a mutual fund. There are the entry and exit load, the various operating fees, investment management fees, Transfer agent fee etc.
Exit and Entry load expenses are those cost which the investor has to pay when he enters a mutual fund or when he opts out of it. It means they charge you when you buy the units of a Mutual Fund and also when you sell it. The entry load fee is to the charge for their services and the exit load charges are to discourage you from leaving the Mutual fund.
All these expenses are periodically published, but most of the investors do not go through these because it looks very complicated, loaded with technical words, which you have every reason to believe is just to confuse the readers.
Sometimes these costs amount to a small percentage of your investments and will look harmless when compared to your returns, but when added up over the years, these costs become significant and eats into your profit.
There are also invisible costs that do not appear on any of these published materials. They are the commission and brokerage of the shares, bonds and other financial instruments bought and sold by the fund managers. These costs are incurred when your fund manager buys and sells these instruments to make a profit.
If your fund manager has the habit of buying and selling a bit more than necessary, then beware of him because he is going to transfer all the brokerage to you. So it is essential to choose your fund manager because a good manager knows how to make money without adding up costs. In other words, a good fund manager does not trade a lot to make money.
Risks: You may have seen at the end of mutual fund ads someone telling that there are risks associated with investing in mutual funds (earlier this was flashed for less than one sec, with someone speaking in the fastest way possible for a human).
Mutual fund managers don’t want you to know the real risks involved in it. They know that if the investors come to know about the real dangers, these investors will be reluctant to invest. Therefore, they downplay the risks and tell you only about the enormous returns that they promise.
When stock markets do not perform well, your fund manager will also not work wonders. So, the performance of the fund depends on the index. Moreover, fund managers cannot be expected to outrun the markets much every time.
Remember, they are investing in diverse stocks to reduce the risks, this means that they work practically like a market. So when the index goes up the fund goes up and when it falls the funds falls with it.
When they promise you high returns, be confident that the risks associated with it are high too. You must be aware of the market situations again. You must check-in which stock your money is being invested by your fund manager and see if it is worthwhile.
So, Are Mutual Funds Worthwhile?
Now you might have come to the conclusion that Mutual fund managers are big fat liars out to get your money. Before taking a firm resolve to not to do anything with mutual funds, you must understand that it is not unwise to invest in them.
Yes, mutual funds are one of the few options around in which you can invest to get good returns. After all, fund managers make a living by making money for investors. If they fail then they would not be able to rake in more investments.
This means that your fund manager will be out of work if the fund fails. So, he is not the worst person on this planet. It is just that he becomes a little bad to make you invest your money in the fund.
However, if you are smart enough, you can see through the costs and risks. Therefore, invest in Mutual funds if you are ready to take risks and don’t believe every word your fund manager believes.
We have discussed some important information about mutual funds and how you can keep safe yourself from expensive interest rates and the good thing is you can easily find mutual funds detail around the internet and understand the mutual fund’s profits and interest that you will pay.