Sometimes I am amazed that there is still a debate over investing in index mutual funds vs. actively managed mutual funds. Index funds have a proven record without the added risk.
DSC stands for Deferred Sales Charge, and most class B mutual funds are DSC funds. This is something that you should really be on the lookout for. When you buy a mutual fund with a DSC you are not paying your financial advisor a commission directly but the fund company will pay your advisor a healthy commission, usually 5%. On top of the commission your advisor still gets a trailer fee, normally about 0.5%. Although you do not pay the commission out of pocket when you buy the fund, you are the one who ends up paying for it.
There are short term, middle term and long term investments and in order to witness exponential growth you will need to invest your money in top mutual funds. People having excess money but no time to invest in stocks may find mutual funds to be the best option. There are lots of companies that have evolved with time and have been performing well in the market and are considered to be safe by almost all the investors. It gives you an opportunity to attain various stocks and bonds. Top mutual funds have the best fund managers who have a vast exposure in the market.
In Feb 2010 Standard & Poor’s launched its most recent Canadian Indices Versus Active Funds Scorecard with data for the five year period ending December 31, 2009. Below are a couple quotes from the report. “Over longer periods, we continue to observe indices outperforming the majority of domestic funds. In three-year and five-year periods, only 12.5% and 7.4%, respectively, of actively managed Canadian Equity funds have outperformed the S&P/TSX Composite Index.”
It is easy to figure out why actively managed investments consistently under-perform with the incredible high Management Expense Ratio (MER) that is charged on actively managed mutual funds in Canada. Having a 2%+ MER compared to an index funds MER of 0.75% or less is a lot to overcome. Overcoming these higher fees becomes an even more difficult task when you look at the holdings of a typical equity fund compared to its index. In most cases the holding are very similar.
It could be really tricky to find the best fund for you. You may like to invest in a fund whose manager thinks exactly the way you do. Important is to get comfortable with the fund manager who understand your needs and accordingly take action. You may also buy an index fund which runs on autopilot. It is always better to read the annual report before investing. Fund manager compares the NAV’s of various companies and suggests the best option. Just be careful with high risk portfolios to play safe in the market
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