Mutual Funds InvestmentMutual funds investment can give you instant balance and diversification in your portfolio. To achieve a balanced diversified portfolio equal to a mutual fund. You would have to invest hundreds of thousands, if not a million dollars in the stock market. Invest as little as a $1,000 in a Mutual fund and you have the same diversification as a multimillion dollar Stock portfolio gives you. To create a mutual funds investment investors pool their cash, hired an expert Fund manager. Whose job it is is to make the mutual fund perform. The Fund manager is given a set of parameters to trade by. Which coincide with the objectives and risk tolerance of the mutual funds investment and sets about making a profit. There are three ways to buy mutual funds: DSC (Deferred Sales Charge)-which means the sales charge (usually 5% is only charged to the account if there is a withdrawal during the chargeable period. DSC is a declining charge that lessens each year the investor maintains the account.
Normally the DSC is only charged against the amount of the orignal investment Example:$100,000 invested--increase to $120,000 first year. Investor withdrawals $120,000 a 5% DSC would be charged on the $100,000 original investment or $5,000 Mutual Funds are also sold with an upfront fee. This can range from 0% to 5%. Example:$100,000 investment with 5% upfront fee--means $95,000 invested and $5,000 spent on acquisition. In either case the sales charge is used to pay the sales person and his/her dealer. Sales people have the latitude to adjust the upfront fee from any where from 0% to 5%. Some sales people sell mutual funds investments with a "Zero Front End" sales charge - meaning there is no upfront fee to the investor. Why would a salesperson give up that big commission? Two reasons, first: When a salesperson sells a fund with a DSC they receive a commission upfront of up to 5%. Plus a yearly trailer fee of half of a percent. This commission is paid from the fund's MER fees (Management Expense Ratio). When sell with a "zero front end" this trailer fee becomes 1% yearly. Over the long term the sales rep will make more money from the zero front end program. Doing this helps the investor -- should an emergency arise the investor can withdraw from the "zero front end" account with no fees -- only the tax to worry about. With a DSC purchase there will be fees during the first 6 years - on each withdrawal. There are funds called "no load", meaning no sales fee is charged. During difficult times the majority of no load funds have a poor track record. In order to find one that will work for you--you will really have to do your homework. NOTE ALL FUNDS HAVE AN "MER" (Management Expense Ratio)-these are internal fees which are used to pay the fund's expenses. The Fund manager and sales people are paid by these fees. The Fund manager’s mandate is to make profit and reduce loss, while going after the objectives of the Fund and staying within the Fund’s parameters. When a sales representative sells units to the general public. They must provide the potential purchaser a copy of the Fund’s simplified prospectus. This legal document explains the Fund's objectives and goals its history and the type of investor it is suitable for. The Fund Management, how they are paid. What the sales representative is paid. What other expenses are associated with the Fund. Mutual funds investment comes in all flavours
There are more funds available in Canada then there are Stocks on the stock market. What Funds should you invest in? That is something that you will have to discuss with a Financial Planner based on your objectives, risk tolerance and time frame. Return from Mutual Funds Investment to Investment Research
Terry Johnston CFP J C Mitchell Financial Services Inc. Phone: 866-721-7781 ext. 232 Disclaimer This is a thumbnail sketch of Funds and does not constitute investment advice. It is a broad picture of Mutual Funds to give enough information so you can ask your Financial Planner for more details, should you wish them.
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