5 things you should know about mutual funds

Mutual funds offer easy access to various securities. In the past, it was impossible for small investors to put money in companies like Microsoft or Apple. Now it is possible because of mutual funds. Here are five things you should know about mutual funds.

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Hidden costs

The mutual fund’s expenses can be higher than you had predicted. There are expenses involved like administrative, marketing and management fees. Commissions are also included. There are also many unstated costs involved in mutual funds. There is a small trading cost every time a mutual fund buys and sells. Market impact cost and transaction commissions are also there.

Check out the turnover of the portfolio

You should look at the portfolio’s turnover.This tells how often a fund purchases and sells assets. It will tell you what type of strategy the fund manager is following.

Be careful about the risks

There are risks associated with mutual fund bond. There may be insured or guaranteed bonds. However, there may be risky bonds as well. You should take the risk into consideration.

Dead money costs

You should know about the dead money costs. The fund manager must hold some cash for purchase opportunities. You will get a percentage of that money. Your money is not invested 100%.

Read the prospectus thoroughly

A mutual fund needs to disclose the activities in does in the prospectus. You need to read it thoroughly before you invest to make a sound judgment.