People have money but still do not know how and where to invest their money. They really do not know the meaning of mutual funds and what they entail. Mutual funds are actually not as complicated as they seem. After reading this article you will be able to know what mutual funds are, the types of mutual funds, the best mutual funds, and a detailed study of vanguard and fidelity mutual funds.
Let’s get on with the real deal without further ado…
What Are Mutual Funds?
A mutual fund is a type of financial channel that consists of a pool of money collected from many investors to invest in securities like stocks, bonds, and other assets.
It may help you to think of it like this. Imagine a group of friends standing in front of an empty bucket. They each take out a $2000 bill and place it in the bowl. These friends just mutually funded that bowl. It is a mutual fund. Now you get it right?
Meanwhile, what the fund is used to invest in, will direct you to what kind of fund it is. If you use the money to buy stock in international markets, then the fund would be an international stock mutual fund. What if you decided to buy bonds? Then it would be a bond mutual fund. You See? Not that difficult right!
Mutual funds are basically carried out by professional money managers. They allocate the fund’s assets and try to produce income or capital gain for the fund’s investors.
it generates money from the public willing to invest and uses that money to buy other securities such as stocks and bonds. The value of any mutual fund company depends on the performance of the securities it decides to buy. Indeed, when you buy a share of a mutual fund, you are basically buying the performance of its portfolio.
Having known this, let us take a look at the vanguard
Vanguard Mutual Funds
Vanguard funds are similar to buy-and-hold investing due to their exceptional selection of high-quality, low-cost mutual funds and ETFs. These qualities make Vanguard mutual funds an ideal investment choice for long-term investors.
Before investing in Vanguard mutual funds for the long term, decide whether you’re a long-term investor. Basically, investors with at least 10 years or more before they start withdrawing from their investment accounts fall into the long-term investor category.
Read Also: HEDGE FUNDS VS MUTUAL FUNDS: 7 key Difference You must know
Vanguard Funds for Long-Term Investing
The following lists are the Vanguard funds to buy and hold for the long term, in no particular order.
Vanguard Total Stock Market Index (VTSAX)
Vanguard’s VTSAX is the largest fund in the world for two primary reasons: It’s a diversified stock index fund, and its expenses are very low.
The portfolio covers the entire U.S. stock market, including small-, mid-, and large-cap stocks.
Vanguard 500 Index (VFIAX)
This index fund tracks the S&P 500 index, which shows it covers about 500 of the largest U.S. stocks. VFIAX shareholders will be able to get access to stocks like Apple (AAPL), Amazon (AMZN), Facebook (FB), and Alphabet (GOOG, GOOGLE), the parent company of Google.
VFIAX is a wise choice for investors who want to build a portfolio that includes other stock funds, such as small and medium capital funds.
Vanguard STAR (VGSTX)
Most funds have a minimum of $3,000 to start investing. However, VGSTX has a lower minimum of $1,000. This is what’s known as a fund of funds, meaning, it invests in other mutual funds, all in one fund option.
Vanguard Balanced Index (VBIAX)
Vanguard has a small but outstanding selection of balanced funds. They invest in a combination of bonds and stock. VBINX has a moderate (medium risk) allocation of about 60% stocks and 40% bonds.
Fidelity Mutual Funds
Previously, mutual funds had been marketed almost only to high-income individuals, retirement money for employers, and/or those already in the finance industry.
Fidelity Mutual funds have three fund divisions: Equity which has their headquarter in Boston, Massachusetts), High-Income whose headquarter is in Boston and Fixed-Income whose headquarter is in Merrimack, New Hampshire.
According to Wikipedia “The company’s largest equity mutual fund is Fidelity Contrafund, which has $107.4 billion in assets, making it the largest non-indexed fund in the US and the largest fund managed by an individual. William Danoff has managed Contrafund since 1990.”
Fidelity Investment has a strong reputation for its mutual funds, but its brokerage arm is no exception: It offers $0 trading commissions, an area of research offerings, and an easy-to-use platform that also can be customized for more advanced investors.
Fidelity investment is mostly best for the following
- Active traders
- Retirement investors.
- Low fees.
- Commission-free stock, ETF, and options trading.
- Premium research
Types Of Mutual Funds
As expected, there are different types of mutual funds, but they are under four different categories. These categories are listed below
- Based on assets classes
- Specialize mutual funds
- Based on structure
- How portfolio is managed
Based On Assets Classes
- Equity funds: This is a type of fund that mainly invests in stocks. It can be managed actively or passively. The highs and lows determine the performance of the market. They usually offer potentially high returns but that also comes with relatively higher risks.
- Debt funds: These funds invest in fixed-income securities, these securities involve bonds, securities, and treasury bills, among others – their interest rate is fixed and it has a maturity period.
- Hybrid funds: As the word implies, hybrid funds are funds that invest in a mix of bonds and stocks and offer the best of both worlds – equity and debt
Specialize mutual funds
- Funds of Funds: A Fund of funds, as the name implies, is a type of mutual fund which invests in other investment platforms. It is generally an investment tactic that pools in money and invests in other investment funds instead of investing directly in stocks or bonds.
- Sector Funds: These focus their investment in one particular sector. The risk is usually highest because these funds invest only in specific sectors. Moreover they also potentially deliver great returns
Read Also: MUTUAL FUNDS UPDATED: 15+ Best Mutual Funds in 2022 (+ Detailed Beginners’ Guide)
Based on structure
- Open-Ended Funds: These funds have no restriction on the period of time. They can also issue an unlimited number of units to the investor.
- Closed-Ended Funds: A closed-ended funds unit of capital is usually fixed, and they sell a specific number of units.
- Interval Funds: These funds are like a mini combination of both open-ended and closed-ended funds. You can only exit them at certain intervals decided by the fund house; they remain closed for the remaining period. No transaction is in agreement for a certain period of time.
How Is Portfolio Managed?
- Actively managed funds: The aim of this type of fund is to deliver market-beating returns. Hence, in this type of fund, a fund manager takes decisions on which stock to buy, when to buy it and when to sell it.
- Passively managed funds: In contrast, a passively managed fund follows a market index to decide which stocks and their corresponding ratio it should have in its portfolio.
Top Mutual Funds
There are lots of mutual funds in the world today. Like in the movies, there are thousands of movies available on the net. But there are some that are outstanding like GOT and the rest of them. Likewise in the world of mutual funds, there are some of these top-performing schemes in 2022.
Mirae Asset Tax Saver Fund
According to the equity bases, they have an equity ratio of 0.29%, with a 23.92%p.a. rate of return. And are also consistent, having a 5star value research rate rating.
Quant Tax Plan
According to the equity bases, they have an equity ratio of 0.57%, with a 23.4%p.a. rate of return. And are also consistent, having a 5star value research rate rating.
Mirae Asset Emerging Bluechip Fund
According to the equity bases, they have an equity ratio of 0.7%, with a 23.26%p.a. rate of return. And are also consistent, having a 5star value research rate rating.
Axis Midcap Fund
According to the equity bases, they have an equity ratio of 0.51%, with a 21.44%p.a. rate of return. And are also consistent, having a 5star value research rate rating.
Quant Active Funds
According to the equity bases, they have an equity ratio of 0.57%, with a 20.86%p.a. rate of return. And are also consistent.
Canara Robeco Emerging Equities Fund
According to the equity bases, they have an equity ratio of 0.66%, with a 20.83%p.a. rate of return. And are also consistent, having a 5star value research rate rating.
Best Mutual Funds
Choosing the best in anything is always a difficult task. However, according to the rating above. We will agree that Mirae Asset Tax Saver Fund is the best mutual fund with the highest rate of return of 23.92%p.a.with a 5star rating.
Read Also: Mutual Funds vs. Index Funds: All You Should Know
Conclusion
In summary, mutual funds are not complicated as they seem. Identify the types and seek the help of a professional before investing in any mutual funds.
Mutual Funds FAQ
What are the 4 types of mutual funds?
As expected, there are different types of mutual funds, but they are under four different categories. These categories are listed below
- Based on assets classes
- Specialize mutual funds
- Based on structure
- How portfolio is managed
Are mutual funds a good investment?
A mutual fund is a type of financial channel that consists of a pool of money collected from many investors to invest in securities like stocks, bonds, and other assets.
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1 comment
Nice! You explained the mutual fund concept very deeply.