Mutual fund performance depends a great deal on the fund manager. If an experienced and expert manager manages the fund, it will certainly perform well. The role of a manager is very important since the investment strategies are designed by him. The manager needs to prepare for contingencies and unforeseen market fluctuations. In recessionary times like this, it is very crucial to invest strategically. Thorough analysis and research are required on the part of the manager. The manager is paid fees, which are a certain percentage of the total net asset value of the fund. The manager’s earnings are directly proportional to the mutual fund performance. A manager is expected to have expert knowledge and credentials for his past performance. It is a very responsible position and requires a complete understanding of the stock and other financial markets. Typically, a mutual fund invests in stocks, bonds, money market instruments, government securities and so on. Thus, it is imperative that the manager has knowledge about all the financial markets.
How Does A Mutual Funds Work?
A mutual fund is a plan wherein money is pooled from several investors and invested in various financial markets. The money is not placed in one company but rather is diversified into different financial markets. This diversification helps in reducing the risk of losses. The risk is spread across different companies, so even if one company fails to perform, there are others that can compensate for the losses. Mutual fund holdings are in the form of units, and their price in the market is called the net asset value, or NAV. When an investor purchases a mutual fund, he or she receives a certain number of units in the fund. The number of units will always remain the same; however, the NAV may fluctuate according to the mutual fund performance and market conditions. Mutual funds are subject to market risk, but the risk is less than for other openly traded financial instruments. They are loaded with several beneficial features like liquidity, economies of scale, professional management and diversification of investment, among others.
A mutual funds house operates and manages the fund. Each fund house will have different types of funds, and you can choose the one that best suits your needs. There are three broad categories of funds: open-ended funds, close-ended funds and unit investment trusts. Open-ended funds are usually equity-oriented and a little risky as compared to close-ended funds. Depending on your risk appetite, you can choose a fund for investment purposes. Age, too, plays an important role in deciding the risk factor. If you are in your twenties or thirties, then a high risk/high return fund may be suitable. However, if you are in an age group of forty plus, then a low risk/moderate return fund will suit your needs. Whatever type of fund you choose, it is the mutual fund performance that will decide your earnings.