The Mystique of Mutual Funds – Part II

What are the fees I need to pay in a mutual fund?
Front-End Load – Fees charged upfront when you invest.Anywhere from 0% to 7% max.
Back-End Load – Fees charged when you exit a fund. Also called as deferred sales charge.

Are there funds where there is no loads?.
Of course. No-Load funds do exist. These funds do not charge any fees. Most people prefer
the no load funds from the Vanguard group.

Are there other fees I need to pay in a mutual fund?
Well there are other fees like 12b-1 fees for marketing expenses and operating expenses for the fund called the expense ratio. These fees are deducted automatically from the fund and you will not need to pay them separately.

For what stocks do I need a mutual funds?
It depends on the type of investor. For most people any type of mutual fund is a necessary. It can large-cap, small-cap or mi-cap. However if you are a professional investors, then mutual funds are the way to go for small caps. It is very difficult to research and invest on your own in small cap stocks. Fund managers have easy access to lots of information and can be the trust to monitor the investment in small stocks.

Are the mutual funds regulated?
Yes. They are heavily regulated. A mutual fund has to mail you statements and annual reports as well. Some do half-yearly reports.

What are the disadvantages of these funds?.
There are some problems with investing in MFs. The loads,expense ratio etc. can eat away a good portion of your returns over the long term like 5-10 years. Other issues are that you may get adversely affected due to other funded holders’ actions, inability to make any stock selections, inability to sell profit and losses whenever needed and unable to sell anytime when the markets are open at the current price.


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