Investments Essay

37. Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

For the majority of working Americans, the most common vehicle for owning mutual funds is through their employer's retirement plan, but very few people are making the most of this mainstay of retirement planning.

Anybody can be given the power to do their own research and become an informed investor in today’s world. As stated by Investopedia, “With the Internet, an investor can find an online company report from the Security and Exchange Commission (SEC) website immediately after it is posted. Large financial documents can be downloaded within seconds and can be searched for key words, topics or specific financial statements” (Ryan Fuhrmann, 2012). Technology has essentially made the

Answer: They provide opportunities for small investors to obtain: low cost diversification; professional fund management according to specific objectives; economies of scale in investing (lower commissions and research costs); higher rates of return than available on bank deposits; and convenience services such as switching funds, low cost reinvestment and sometimes even check writing capabilities.

Because mutual funds are professionally managed investments, there are management fees and operating expenses associated with investing in a fund, which is called expense ratios ranging from 0.2% to 2.0%. These fees and expenses charged by the fund are passed onto shareholders and deducted from the fund’s return.

As is said in Fama’s paper in 1970, (Eugene F, 1970)“the evidence in support of the efficient

Hedge funds feature returns different from those of mutual funds. The different trading strategies and investment styles are amongst a few factors that explain the difference (Boyson, 2010). The institutional and individual investors create a common pool of funds and employ professional managers to manage the fund. Ideally the manager is compensated from two sets of fees: management fee and performance fee. They impose a management fee based on the size of the asset managed, usually at the rate between 1-2%. A performance fee will be imposed at the rate between 20-30% of the returns on the investments made (lecture notes).

In analyzing both hedge and mutual funds, is it also important to look at the advantages, and implicit disadvantages, from the managers point of view, and not only the investors point of view. One major difference that cannot be ignored is the difference in fees. In this category mutual funds present a major disadvantage as they are allowed to impose only certain fees under the limitations of specific guidelines. An example of this that federal law requires them to act out of a

Last but not least, the fee structure of hedge funds is quite unique. The fees are much higher than regular institutional fund managers. The administrative fee usually range from 1 % to 2% of the assets under management (AUM) and the incentive fee, the large one, ranges from 15% to 20% of net new profits. The latter fee is subject to a condition. The “high watermark” provision requires a hedge fund managers to make up for incurred losses, if any, before receiving any incentives; which would happen only after the returns are back to the previous levels.

The mutual fund concept was simple, allow the un-sophisticated investor access to the strategies of the professional money manager. This was done by pooling small sums of money, as little as $20.00 deposited monthly. In return, the fund company would use professional money managers using professional investment strategies to easily out perform traditional bank savings products.

Gallacher felt that asset allocation could be worth up 4.00% a year ignoring the other factors and comparing a pure deposit approach with a pure equity portfolio but he agreed

But for choosing such an option, the common investor needs to be fully informed about the stock market which becomes a difficult situation. The intricacies of the market are difficult to understand. Mutual Funds have both pros and cons when compared to direct investments in particular and individual securities. An important characteristic of mutual funds is that, the contributors and the beneficiaries are the same people i.e. the investors. Many a times it may so happen that, the investor lands up buying shares of those companies, which they would have otherwise could not buy due to the high prices. But in case of mutual funds, due to the huge corpus collected, an individual can get shares in highly rated companies. To measure the performance of a mutual fund, the investors must look at the Net Asset Value (NAV) of the fund. The net asset value is assessed by calculating the total assets minus all the expenses and divided by the number of units held in the fund. Studies show that the NAV of a fund is affected by various factors of the fund like the turnover, expenses ratio, load status, etc. A load is a sales charge or commission. This is an amount paid by the investor for the intermediary which could be a broker, financial planner, an investment advisor, etc. This is the fee paid to them for their time and expertise. And this load can either be paid at the time of purchase of the

Mutual funds are investment plans that let you to pool your money together with additional investors to purchase a collection of securities that might be difficult to recreate on your own. This is often referred to like a portfolio. The price of the mutual fund, also recognized as its net asset value is determined by the total value of the securities in the portfolio, divided by the number of the fund’s unsettled shares. This price varies based on the value of the securities held by the portfolio at the end of every business day. Note that mutual fund investors do not really own the securities in which the fund invests; they only own shares in the fund itself.

How? Each mutual funds within the target date fund comes with an underlying fund expense. Then, many fund companies add an extra fee layer to the target date fund itself, as a cost of choosing which funds to select within the portfolio.

A mutual fund is an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations, as defined in the Merriam-Webster dictionary. Mutual funds help with financing and investing opportunities. They give the small investors a chance to invest their money in other areas besides stocks and bonds. There is multiple mutual funds to choose from and different reasons why shareholders should choose them. As popular as mutual funds have become, there is downfalls to them like most investment opportunities. In 2003, mutual funds were giving a bad name when a scandal was brought public. These opportunities and issues will be discussed.