Index Funds vs. Actively-Managed Funds

Index Funds vs. Actively-Managed Funds
What do the Yankees and Red Sox have in common with index funds and actively-managed funds? Each seems like an age-old rival with die-hard fans on each side that are unwilling to concede -- despite the winning streaks and losing streaks.

Well, let’s face it, the Red Sox are better than the Yankees.
What Is an Actively-Managed Fund?

The portfolio manager of an actively-managed fund tries to beat the market by picking and choosing investments. The manager performs an in-depth analysis of many investments in an attempt to outperform the market index -- like the S&P 500.
What Is an Index Fund?

Index funds are considered to be passively managed. The manager of an index fund tries to mimic the returns of the index it follows by purchasing all -- or almost all -- of the holdings in the index. Hundreds of market indexes can be invested in via mutual funds and exchange-traded funds.
Should You Own Actively-Managed Funds or Index Funds?

The potential to outperform the market is one advantage that actively-managed funds have over index funds, and this notion of outperformance is attractive to investors. After all, why settle for an index fund when you know you will only receive the market return, less a nominal fee, to the fund’s manager? Unfortunately, evidence that actively-managed funds can consistently outperform their relevant index is difficult to find. It’s even more challenging for an individual investor to identify which actively-managed fund will outperform the index in a given year.

According to Vanguard, for the 10 years leading up to 2007, the majority of actively-managed U.S. stock funds underperformed the index they were seeking to outperform. For instance, 84% of actively-managed U.S. large blend funds underperformed their index, and 68% of actively-managed U.S. small value funds underperformed, as well. The case is even worse for actively-managed bond funds. In that case, almost 95% of actively-managed bond funds underperformed their indexes for the 10 years leading up to 2007.
Luck or Skill?

You might point out that some funds indeed beat their indexes, so why not buy those? Well, how do we know whether the active manager was skilled in his or her investment selection, or was just lucky? The evidence from a Barclays Global Investors study shows that the chance is slim for continued outperformance by an active manager to continue beating the index.

For the period of December 31, 1992 to December 31, 2007, only 41.6% of actively-managed U.S. large company funds that beat the S&P 500 in a particular year were able to beat the S&P 500 in the next year. After three years, only 9.7% of the original group was still beating the index. The numbers are similar for actively-managed small cap funds and emerging market funds.
Cost Considerations

Actively-managed funds start at a disadvantage when compared to index funds. The average ongoing management expense of an actively-managed fund costs 1% more than its passively managed cousin. The expense issue is one reason why actively-managed funds underperform their index.
Tax Considerations

Another issue, which is not reflected in fund return numbers, is that the portfolio manager of an actively-managed fund—who is in search of extra returns—buys and sells investments more frequently than an index fund. This buying and selling of stocks by the active manager-- known as turnover -- results in taxable capital gains to the fund shareholders, provided the fund is owned in a non-retirement account.

The evidence shows that there are good active managers, but finding such managers in advance of their outperformance is difficult. More importantly, as the Barclays study suggests, uncertainty always surrounds the good managers. Can they continue to outperform?

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Advantages of Mutual Funds

Advantages of Mutual Funds

A Mutual Fund can be defined as a trust wherein the savings of the investors with the same financial goal are pooled in. The collected money then goes for investment in capital market instruments. These can include debentures, shares and other such securities. These investments in turn yield an income. The income and capital appreciation are distributed amongst its unit holders. The advantages of mutual funds are many. Some of the advantages of mutual funds in India are listed below:

Mutual Funds Advantages

There are several advantages of investing in a Mutual Fund and that is why more and more people are taking to it. Some of the major benefits of mutual funds in India are as follows:

• Diversification: The top Indian mutual funds create their portfolio designs in such a manner that the interested individuals who invest in mutual funds react differently even under similar economic conditions. This can be explained with an example. An increase in the rates of interest may lead to the diminishing of the asset value of securities in the portfolios. Again, an increase in the value may result to the appreciation in value of the other set of portfolio securities. Over time, a balance is created in the portfolio which leads to an overall increase of the portfolio, even if some security values diminish.
• Professional Management: A majority of the mutual funds in India employ the leading professionals in their investments management. These managers make decisions on what securities, the buying and selling of the funds will take place.
• Regulatory oversight: There are certain rules and regulations framed by the government which every Mutual fund are required to follow. This is to protect the investors from any fraudulent activities.
• Liquidity: Getting your money out from the mutual fund is no difficult task. All you have to do is just write a check, make a telephone call and you are done.
• Convenience: Mutual fund shares can be bought via phone, mail, or even over Internet.
• Low cost: The expenses of the Mutual fund seldom cross the 1.5 % mark of the investment you make. The Index Funds expenses are usually lesser. Instead, the company stocks are bought by them which are found on the specific index.
• Ease of process: Investing in a mutual fund is easy if you are a bank account holder and you posses a PAN card. All you will need to do is fill up the application form, attach the PAN card (for transactions over Rs 50,000), sign the cheque and your Mutual Fund investment is complete.
• Well regulated: The SEBI (Securities Exchange Board of India) regulates the India mutual funds for the security and convenience of the investors. SEBI ensures that a transparency is maintained by keeping a strict vigilance on the mutual funds. This keeps the investor informed and helps him/her to make his/her choice. To keep a track whether the investment in Mutual Fund is in line with the objective or not, SEBI demands the disclosure of portfolios once in every six months

Article Source:http://mutualfunds.headlinesindia.com/advantages.html

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Mutual Funds Information

Mutual Funds Information

In our current economic situation, it’s becoming more important to diversify our investments in order to reduce risks. The old adage, “Don’t put all your eggs in one basket” is especially true in that you risk losing everything if you pour all your money into a particular stock or investment.

Mutual funds are becoming an extremely popular vehicle for investments as it offers diversification, liquidity, professional management and simplicity. Here are essential mutual funds information to get you started.

Definition of Mutual Funds

There is often considerable confusion about what exactly mutual funds are and how they work. In simplistic terms, mutual funds are professionally managed funds pooled by various investors which are then invested into stocks, bonds and other assets. Each investor holds shares of the mutual fund which entitles the investor a percentage of the fund.

You can earn income with mutual funds from dividends on stock or interest on bonds. In addition, if the fund sells a security and makes a capital gain then the profit is typically distributed amongst the investors. You can also sell shares of the mutual fund for more than you bought it for thus leaving you with a profit. In addition, there are also several different types of mutual funds depending on your investment level. Mutual funds information is essential if you want to become a successful investor.

Top Reasons to Invest in a Mutual Fund

1. Selection – There are literally thousands of mutual funds that you can select that range from funds that invest only into energy stocks or those that invest in global stocks so you’ll be sure to find something that suits your investment needs and risk levels.

2. Ability to start small – Depending on the mutual fund you choose, you can opt to start with a small investment. Most mutual funds will allow you to invest with less than $1,000 and some will even let you start with as little as $50 if you set it up for automatic deposits.

3. Professional management – Mutual funds are typically managed by professional advisors who earn their salaries through commission and yearly fees. Before investing in a fund however, it’s a good idea to do thorough research into the board of advisors and how they allocate the funds.

4. Diversification – One of the advantages of investing in a mutual fund is that they consist of different assets, thereby reducing your risks. But if one particular stock goes down, it is very well possible for the mutual fund to still be going up if the other investments go up.

5. Specialization – Due to the immense number of mutual funds, there are funds that invest in a very particular number of companies ranging from different industries. For example, there are funds that invest only in global funds or stocks from energy companies.

Mutual funds information is essential for any serious investor. Mutual funds are an excellent investment vehicle and should be part of your portfolio if they aren’t already. While there are many benefits to investing in a mutual fund, it’s important that you do thorough research into the fund and its financial advisors. Gathering as much mutual funds information is vital to your success as your picks will determine how well you do.
Article Source:http://topmutualfundsonline.com/

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Best Mutual Funds

Best Mutual Funds
For those who do not have an in depth knowledge of stocks but would like to start investing, finding the best mutual funds are a great way to get started as they allow you to diversify your investment and thereby reduce your risk. Some of the best mutual funds are typically managed by a financial advisory board that use funds pooled from a group of investors to invest in short term investments like stocks, bonds or securities depending on which fund you choose.

For those who do not have an in depth knowledge of stocks but would like to start investing, finding the best mutual funds are a great way to get started as they allow you to diversify your investment and thereby reduce your risk. Some of the best mutual funds are typically managed by a financial advisory board that use funds pooled from a group of investors to invest in short term investments like stocks, bonds or securities depending on which fund you choose.

While you want to be able to find the best mutual funds to invest your money in, what may have been the best in previous years may not be so today. It’s also important to keep up with current trends and to thoroughly do your research behind each company and its board of advisors. If possible, consult a financial advisor for further mutual fund advice and how to invest.

When choosing the best mutual funds, be sure that it has income-dividend potential. Choosing the right mutual funds can provide you with a steady cash flow either through dividends or bond interest payments.

Another factor to consider is to find funds that have the potential to perform well in future years to come. This entails being able to effectively identify trends. One trend that has seen explosive growth in recent years is the movement towards being green and eco-friendly. Here are five of the best mutual funds for 2009 based on the research of performance, stability and income potential.

1. American Century High Yield Fund (AHYVX)

With the current economic crisis, one of the best ways to make money is to find mutual funds with a stated income. This includes those with high dividend yield and bond interest payments. The American Century High Yield Fund has a much larger dividend yield than most typical mutual funds or stocks.

2. Franklin Gold & Precious Metals (FKRCX)

The FKRCX mutual fund has been one of the top performances with a 10-year return on investment of 14.42% with a dividend yield of 8.34%. Gold has been a fairly stable investment for investors.

3. The New Alternatives Fund (NALFX)

This mutual fund has investments in renewable energy sources that are also concerned with environmental production and energy conservation. Over the next couple of years, energy stocks are likely to see explosive growth as our country moves towards a greener friendly environment.

4. Vanguard Energy Fund (VGENX)

Although prices of energy commodities have reached its peak in earlier years, oil prices are likely to raise again. The VGENX fund has seen a 10-year annualized return of 14.81%. This is exactly the kind of mutual that is positioned to perform well.

5. ING Corporate Leaders Trust Fund (LEXCX)

Though this fund has had a poor annualized return due to the recent stock market downturn, this mutual fund has consistently outperformed the S&P500 by 10% over the past year. In addition, it also has a divided yield of 2.46%.

Keep in mind that these mutual fund picks are only recommendations. It is important that you always do your research first into which fund is the best investment for your situation and why. While these may be good choices now, they may not be great investment choices in later years. Prior to investing, it is essential to gather as much mutual funds information as possible.
Article Source:http://topmutualfundsonline.com/best-mutual-funds/

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Fund Analysis

Fund Analysis
Fund	Category	Rating	3 Yr Return
Canara Robeco Income	Debt: Medium-term		14.27
Fortis Flexi Debt Reg	Debt: Medium-term		12.33
Sahara Income	Debt: Medium-term		10.75
Birla Sun Life Dynamic Bond Ret	Debt: Medium-term		10.54
ICICI Prudential Infra...	Equity: Diversified		7.74
Reliance Regular Savings Equity	Equity: Diversified		6.05
Birla Sun Life Frontli...	Equity: Diversified		5.45
Principal Child Benefit	Hybrid: Equity-oriented		5.03
IDFC Premier Equity Pl...	Equity: Diversified		4.65
DSPBR Top 100 Equity Reg	Equity: Diversified		4.61
DBS Chola Opportunities	Equity: Diversified		3.58
DSPBR Balanced	Hybrid: Equity-oriented		3.55
HDFC Prudence	Hybrid: Equity-oriented		3.43
HDFC Top 200	Equity: Diversified		3.43
HSBC Equity	Equity: Diversified		1.90
DSPBR Equity	Equity: Diversified		1.79
Franklin India Prima Plus	Equity: Diversified		1.36
DWS Investment Opportunity Regular	Equity: Diversified		1.16
Magnum Contra	Equity: Diversified		0.03
Reliance Growth	Equity: Diversified		-0.00
ICICI Prudential Dynamic	Equity: Diversified		-0.41
ICICI Prudential Income	Debt: Medium-term		12.78
IDFC Dynamic Bond Plan A	Debt: Medium-term		12.33
Kotak Bond Regular	Debt: Medium-term		11.47
ING Income	Debt: Medium-term		11.13

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