Last time, we introduced Mutual Funds; what they are and all the shapes and sizes in which they come. Today, we’ll talk about the whys, benefits, risks and importance to us millennials.
4. Why Invest In Mutual Funds?
- Mutual Funds afford a lot of us who do not know much about the business of buying and selling securities as an opportunity to invest and make money passively.
- We can actually save for the future without all the temptations.
- By investing in mutual funds we have an opportunity of investing in a bunch of diverse instruments rather than just having your money in just one basket. For example, your N100k investment in a single mutual fund can represent an investment in bonds, stocks, treasury bills etc.
5. How Much Is Ideal to Invest?
Mutual Funds typically have an investment band depending on the nature of the fund. Some can be as low as a minimum of N5,000.
6. Is It Profitable?
Of course Mutual Funds are exposed to risks just like any other business and this usually determines if a good profit would be made. These guys will never tell you it’s not profitable so the best way to know how profitable a mutual fund is or can be if the fund owners already have a history. Most of the managers already have experience in running funds and so must have track records of their performance in the past. It is also important that you look at what type of returns they intend to offer to their investors.
I mean, why would we even talk about it if it wasn’t though?
7. Just How Profitable is Profitable?
This depends on your risk threshold. For example, if you have N100k and think you can invest it in any other business of your choice and get a profit of N20%, then investing in a mutual fund that promises 12% may not be a good idea for you. In general mutual funds will typically offer you returns that are benchmarked above inflation rates so inflation won’t affect.
Oshey, 30 billion gang loading!
8. Are My Returns Tax-Free?
Heck No! If you know any investment that’s tax-exempt, please let us know. Hence you will be taxed on the profit obtained by the relevant tax authority. Losses from Mutual Fund investment will not be used to offset taxable profits i.e. the percentage stays the same whether you make more or less.
Sad but no, nothing is free.
9. What Is In It For the Fund Managers?
Fund Managers are in it for the fees they charge you for helping you invest your money. They sometimes charge you fees upfront when you invest and also charge you a fee when they make a profit on your investment. Remember, profits are declared after deducting from revenue, cost of investments, statutory expenses, taxes, etc. Managers can charge fees ranging from 1% — 5% of the Value of the Portfolio.
Of course they will collect their own.
30 billion gang cannot come to you without making money moves. Go and be great!