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Showing posts with label mutual funds definition. Show all posts
Showing posts with label mutual funds definition. Show all posts

Tuesday 28 August 2012

Mutual Fund Scams


Many financial planners sing about the virtues of mutual funds. They will tell you mutual funds are great long-term investments with high returns and very low risk. In reality, the only thing mutual funds are good for is lining the pockets of people who sell and run them. Before you invest in a mutual fund, consider the following.

There Are More Mutual Funds Than Stocks

At last count, there were over 17,000 mutual funds in the US. That’s more than all the stocks listed on the US exchanges.

Crazy High Fees

Mutual funds carry very high fees compared to other investments. You have purchase fee, redemption fee, exchange fee, account fee, management fee, fee for going to restroom, etc. Just buying a mutual fund puts you in the red from the get-go. The SEC does not limit the size of sales load a fund may charge, but the NASD does not permit mutual fund sales loads to exceed 8.5%. That is a crazy high commission. It means your mutual fund needs to increase in value by 8.5% just so you can break even!

Ah, but what about the backend loaded funds? They can be even worst. Sure, all your money goes into the fund but now you’re locked in for up to 10 years if you wish to avoid paying a load. If you need the cash before then, you have to pay a commission on not only the amount you invested but also on the gain as well! What about “no load” funds? There is no such thing. All funds have a load on it. The financial planner will get his commission for selling you the fund. If you do not pay the commission, then the fund pays it. Guess where the fund eventually takes the money from?

You Are Last In Line

Even before the fund makes one dollar, money comes off the top to pay the fund management company. It doesn’t matter if the fund makes or loses money, the fund company gets a percentage of the fund’s net asset value. Some funds have very high management fees – up to 2% of the fund value. That’s another 2% you have to make up to get back to square one.

Then we have the fund manager. This hot shot is supposed to turn your life savings into a fortune. For the work they do, mutual fund managers are among the most overpaid people in the world. Everyone on Wall Street makes far too much for moving money around, but mutual fund managers are the most reprehensible. Fund managers earn $500,000 to over $1 million a year including bonuses – but 70% of them can’t beat the market. In other words, you are paying them for a 70% chance of losing money. Oh, they will spin any profit as a gain but the question remains, if you cannot even match the market, are you making any real gains?

It Is Possible To Make A Loss and Still Pay Capital Gains Tax

During a crash or market correction, the mutual fund value will drop. This drop can panic many investors, who will then pull their cash out (fees and backend loads be damned). If the fund is fully invested, the fund manager will have to sell some of the holdings in order to pay off the people redeeming fund units. While a normal investor would sell their losers and keep the winners in a down market, the reverse happens in a mutual fund. The fund manger will sell off the winners to pay off the people cashing in their fund so he can look good at bonus time – fund managers don’t get big bonuses for selling holdings at a loss. While this is good for the fund manager, it triggers a capital gain to you. So you are paying capital gains tax on a fund that is declining in value! Talk about getting double screwed!

Still Want To Invest?

If you still want to invest in mutual funds then do yourself a favor and stick to the low cost index funds. Index funds are like mutual funds except the fund manager doesn’t decide what to invest in, the index the fund covers does. For example, an S&P 500 index fund would only hold shares in companies that make up the S&P 500. If S&P drops a company from their index and adds a new one, the index fund must sell the dropped shares and buy shares of the newly added company. This is one reason why Google had to do a 2nd $4 billion offering. They got included in the S&P 500 and the index funds needed to buy their shares in order to maintain their proper holdings. The fees and expense ratio on an index fund are lower and their fund manager isn’t paid as much as a mutual fund manager – any idiot can manage an index fund.

Mutual Fund investments are subject to market risks, please read the offer document before nvesting. Investors may note that securities, which offer higher potential return, will usually display higher volatility. Equity securities by nature are volatile and prone to price fluctuations on a daily basis due to macro & micro factors

Happy Landings ..........

Capt Shekhar Gupta
AeroSoft Corp
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Mutual funds must launch direct plans and offer higher NAV MUTUAL FUNDS MUST LAUNCH DIRECT PLANS AND OFFER HIGHER NAV


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Sunday 26 August 2012

Why some Bankers MisGuide Investors for MF

Save their soul and Job

Is Mutual Funds safe 

Bernanke Warns That "Money Market Mutual Funds Not 100% Safe"

Federal Reserve Chairman Ben Bernanke was unusually candid yesterday at a Senate hearing when he admitted there were “still more risks” of a “run” in money market mutual funds” owned by investment giants  such as Fidelity, Putnam and T. Rowe Price. “It’s not true that money market mutual funds are 100% safe,” he told a Senate committee hearing.

“Some of the tools we used in 2008 to arrest the run on funds are no longer available,” Bernanke explained to an inquiring Senate committee hearing. He singled out the inability of the Fed  to guarantee 100% of the public’s  holdings  in these funds, or in other short term investments such as commercial paper, which was guaranteed in 2008 gto allow corporations to roll over their short term debts. Bernanke also mentioned the requirement included in the  proposed rules to Dodd-Frank Bill that  would require investors to leave 3% of their holdings in money market funds when they liquidate their positions. Bernanke and others have suggested this new rule may dissuade some investors from leaving their money in  these funds, which today hold $3 trillion in assets. Until the Lehman bankruptcy and the resulting meltdown in the financial markets  the public has always considered 100%  safe and secure.

Just last week SEC chairwoman Mary Schapiro also warned  that  a run on a single money market fund “could trigger a broad and destabilizing “  follow-on in the $3 trillion money market funds that hold the short-term savings and deposits of individual investors and are often considered their safety funds in case of  an emergency.

Bernanke was more sanguine about the Fed’s proposal to keep interest rates near zero until well into  2014.  As only 10% of household wealth is in fixed income securities, both short and long term, Bernanke suggested that any trend to higher rates won’t damage much of household wealth. “It’s better to have 90% (of household wealth, the value of homes, equities, small businesses) go up in value” rather than the price of bonds, Bernanke suggested.

“The benefits of lower interest rates until 2014″ should help economic activity” including the value of commodities, the Fed chairman said in making the case for his policy.  His theme was that the private economy should benefit more from lower interest rates than any damage they might doi to savers and retired pensioneers.

Shekhar GuptaCEO
Capt. Shekhar Gupta [ Pilot, DIAM, M.Ae.S.I., MAOPA [USA] ] 
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