an essay about mutual funds

Essay on Mutual Funds: Top 8 Essays | Money Market | Financial Management

Here is an essay on ‘Mutual Funds’ for class 11 and 12. Find paragraphs, long and short essays on ‘Mutual Funds’ especially written for college and management students.

Essay on Mutual Funds

Essay Contents:

• Essay on the Disadvantages of Mutual Funds

Essay # 1. Introduction to Mutual Funds:

ADVERTISEMENTS:

Mutual funds are money-managing institutions that pool money from the public and invest it in capital market (e.g. stocks, bonds and other securities). Such schemes are managed by Asset Management Companies (AMC), which are sponsored by different financial institutions or companies. Mutual funds issue units to the investors, which represent an equitable right in the assets of the mutual fund.

This unit has a value called as Net Asset Value (NAV). It is calculated by subtracting liabilities from the value of a fund’s securities and other items of value and dividing this by the number of outstanding shares.

So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00.

Essay # 2. Types of Mutual Fund Schemes :

On the basis of their structure and objectives, mutual fund can be classified into various types as displayed in figure 8.2.

A. On the Basis of Maturity :

i. Open-End Funds :

Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.

ii. Closed-End Funds :

Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the funds is not allowed.

However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions:

1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAY of a closed-end fund is computed on a weekly basis (updated every Thursday).

2. Closed-end Funds may also offer “buy-back of units” to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.

B. On the Basis of Investment Objectives :

1. Equity Funds :

Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, growth option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date.

Equity funds can also be further classified into:

(a) Sector Based Equity Funds:

These are those funds that that restrict their investments to a particular segment or sector of the economy. Also known as thematic funds, these funds concentrate on one industry such as infrastructure, banking, technology, energy, real estate, power heath care, FMCG, pharmaceuticals etc. The idea is to allow investors to place bets on specific industries or sectors, which have strong growth potential.

(b) Medium and Small Cap Equity Based Funds:

These funds invest in companies that are medium or small cap companies. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company’s share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.

(c) Large Capitalization Funds:

These funds invest in companies that are large cap companies. Market capitalization of large cap companies is more than Rs. 2500 crores.

(d) Diversified Funds:

These funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.

(e) Value Funds:

These funds invest in companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio.

2. Debt Oriented Schemes :

Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors.

In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment.

3. Balance Funds :

These funds generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth.

4. Liquid or Money Market Funds :

These funds invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

5. Gilt Funds :

These funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors.

6. Index Fund:

These funds invest in companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex)

C. On the Basis of Load :

i. Load Funds :

Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager’s salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds.

A load fund may impose following types of loads on the investors:

1. Entry Load:

It refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor’s contribution amount to the fund.

2. Exit Load:

These charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor

ii. No-Load Funds :

All those funds that do not charge any loads are known as No-load Funds

D. On the Basis of Tax :

i. Tax-Exempt Funds :

Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free.

ii. Non-Tax-Exempt Funds :

Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

Essay # 3. Mutual Funds offer Schemes with Two Options – Dividend and Growth Option :

i. Dividend Payout Option :

This option proposes to timely pay distributable surplus/profits to the investor in the form of dividends (either through cheques or ECS (Electronic Clearing Service) credits), thereby facilitating the investor to liquidate profits. The dividend option does not re-invest the profits made by the fund though its investments. Instead, it is given to the investor from time to time.

ii. Growth Option :

Under this option, the investor does not receive any dividends. Instead he continues to enjoy compounded growth in value of the mutual fund scheme, subject to the investment bets taken by the fund manager. In the growth scheme, all profits made by the fund are ploughed back into the scheme. This causes the NAV to rise over time.

There is one more option that is provided by some of the new mutual fund schemes :

a. Bonus Option:

Under bonus option the investor is not paid regular dividends. Instead he continues to receive bonus units in accordance to a ratio declared by the fund house, (very few mutual fund houses have this option).

b. The Impact on the NAV :

The NAV of the growth option will always be higher than that of the dividend option because money is going back into the scheme and not given to investors.

c. The Tax Impact :

Dividends from a mutual fund are not taxed. When the investor sells the units of a mutual fund and makes a profit, it is known as capital gain.

d. Equity and Equity Related Funds :

If you sell the units of such funds within a year of your purchase, the profit on this sale is called a short-term capital gain. It is taxed @15% on short-term capital gain. If you make a make a profit by selling the units after a year, it is called long-term capital gain. This is not taxed.

Net assets of the scheme = Market value of the investments + receivables + other accrued income + other assets – Accrued expenses – other payables – other liabilities.

NAV is computed per unit of holding. If total assets of a scheme are Rs. 50 crores and liabilities are Rs. 10 crores and there are 2 crores unit holders, the NAV per unit is Rs. 20.

A new investor invests at the value of the existing NAV of a particular scheme. Since, investments by a Mutual Fund are marked to market, the value of the investments for computing NET ANNUAL VALUE will be at market value. NAV of Mutual Fund schemes are published on a daily basis in Newspapers and play an important role in investor’s decision to enter or exit. The NAV is used to calculate the yield on the schemes.

Essay # 4. Calculating Returns on Mutual Fund :

Investors derive income from mutual fund units in following ways:

1. Cash dividend

2. Capital gains disbursement

3. Changes in the funds NAV per unit (unrealized gain)

The one year holding period return is calculated as follows:

D = Dividend received

C = Capital Gain realized

NAV 1 = Net Asset Value at the end of year

NAV o = Net Asset Value at the beginning of the year

Essay # 5. Mutual Fund Performance Evaluation with the Help of Ratios :

1. Sharpe’s Ratio :

This ratio was given by Nobel Laureate US Economist William Sharpe. It is a reward to variability ratio. It is the ratio of the risk premium to the variability of returns (standard deviation of returns).

The formula is:

r p = Expected return on the portfolio

r f = Risk free rate of return

σ p = Standard deviation of portfolio return

The higher a Sharpe’s ratio, the better a portfolio’s returns have been relative to the degree of investment risk taken by the investor.

Interpretation of Value:

A ratio of 1 indicates one unit of return per unit of risk, a ratio of 2 indicates two units of return per unit of risk, and negative values indicate loss or that a disproportionate amount of risk was taken to generate a positive return.

Advantages :

i. It is a very simple measure as well as very easy to calculate

ii. It is an excellent tool to compare multiple investments that are all within the risk tolerance of the investor. Comparing the Sharpe Ratios of such investments will give an excellent idea of how much each investment is compensating for the risk as compared to the other investments.

iii. It is arguably more versatile than other metrics such as Alpha and Beta. While Beta needs to be based off a specific index and the precision of Alpha is based on a high R ^ 2, Sharpe Ratio has no such restrictions. A Sharpe Ratio can be used to compare different types of investments (stock funds and bond funds) using the same assumptions

Limitations :

i. The Sharpe Ratio uses only the standard deviation as a measure of risk. This can be problematic when calculating the Ratio for asymmetric returns because the Standard deviation is most appropriate as a measure of risk for strategies with approximately symmetric return distributions.

ii. The Ratio formula assumes that the risk free rate is constant, but practically, it is not so.

iii. By looking at its formula, it can be seen that the ratio should decrease if we increase the risk (volatility) but that is true only when the Sharpe ratio is positive. However, with a negative Sharpe ratio, increasing risk results in a larger Sharpe ratio. Therefore, Sharpe ratio should not be used as a measure to compare portfolios that have a negative Sharpe ratio value.

2. Treynor Ratio :

This ratio was developed by Jack Treynor. It is a reward to volatility ratio. It is the ratio of the risk premium to the volatility of returns (portfolio beta).

β p = Portfolio Beta

The higher a Treynor’s ratio, the better a portfolio’s returns have been relative to the degree of market risk taken by the investor.

i. It measures the volatility in terms of non-diversifiable risk i.e. market risk (systematic risk).

ii. It is useful in comparing funds that invest in similar market sectors and achieve similar returns

i. Past beta values are used, so historical in nature.

ii. As the ratio measures the reward against systematic risk, it is not very useful for measuring returns of a less diversified portfolio with high unsystematic risk.

In a fully diversified portfolio, Treynor’s ratio would be the appropriate measure of performance evaluation. For a portfolio that is not so well diversified, the Sharpe’s ratio would be appropriate.

3. Jensen’s Alpha :

This ratio was developed by Michael Jensen. It measures the differential between the actual return earned on a portfolio and the return expected from the portfolio given its level of risk.

Jensen’s alpha = Return of the portfolio – Expected return (as per CAPM model)

α p Jensen’s alpha

β p Portfolio beta

r p Expected total portfolio return

r f Risk free rate of return

r m Expected market return

A positive alpha figure indicates the fund has performed better than its beta would predict. A negative alpha indicates a fund has underperformed, given the expectations established by the fund’s beta.

4. Fama’s Net Selectivity Measure :

It was developed by Eugene Fama. This value measures the overall performance of a fund. It provides an analytical framework that allows a detailed breakdown of a fund’s performance into the source or components of performance.

The total return of a portfolio can be broken into two broad components, risk free return and excess return. This excess return can then be broken into other components like return from market risk, return from diversifiable risk and return from pure selectivity.

Total return = Risk free return + Excess return i.e. Total return = Risk free return + (Return from market risk + Return from diversifiable risk + Return from pure selectivity)

It can be represented as:

r p = Return of the portfolio

r f = Risk free rate of Return

r 1 = Return from market risk

r 2 = Return from diversifiable risk

r 3 = Return from pure selectivity

Substitute the above values with the following ones:

Β p = Portfolio beta

r m = Expected market return

σ m = Standard deviation of market index return

By substituting, we get,

If the value of this measure is positive, it means that the portfolio manager (fund manager) has been successful in selecting the right stocks for the portfolio. If the value is negative, it is n indicator of poor performance of the portfolio manager. Thus, basically Fama’s net selectivity measure is useful in analyzing the effectiveness of the skills of the fund manager.

5. Management Expenses Ratio :

It measures the percentage of expenses that were spent to run a mutual fund scheme. It includes expenses like management and advisory fees, consultancy fees, etc. but does not include brokerage costs for trading the portfolio. A lower value is a sign of cost effective fund management.

Management expenses ratio = Expenses per unit / Average NAV

Average NAV = (NAV at beginning of year + NAV at end of year) / 2

Essay # 6. Systematic Investment Plan (SIP) :

An SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit. An SIP allows one to buy units on a given date each month. A SIP can be started with as small as Rs 500 per month in ELSS schemes.

Advantages of SIP :

i. Rupee Cost Averaging :

SIP minimizes the effects of investing in volatile markets. It helps in averaging out the cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. Since one get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of the investment is often reduced.

ii. Convenience and Regularity :

SIP gives the convenience to pay through Electronic clearance service (ECS) or Auto Debit. A fixed amount will automatically get debited from the account on a date specified by the investor.

iii. Disciplined Approach towards Investment :

Since the investor invests regularly, it leads to disciplined savings, which leads to wealth accumulation. Disciplined investing is vital to earning good returns over a longer time frame.

In the above table, the investor has acquired the maximum number of units when the NAV was the lowest at Rs.9 and minimum number of units when the NAV was the highest at Rs.16. Thus, it enables investors to do rupee cost averaging.

Essay # 7. Advantages of Mutual Funds :

1. Professional Management:

The primary advantage of funds is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

2. Diversification:

By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others

3. Economies of Scale:

Since a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions

4. Liquidity:

Just like an individual stock, a mutual fund allows you to convert your shares into cash at any time.

5. Minimum Investment:

Mutual fund companies nowadays offer schemes with minimum investment as low as Rs.500 invested on a monthly basis.

6. Choice of Schemes:

Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options.

7. Transparency:

Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator

8. Flexibility:

Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.

Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

10. Tax Benefit:

Investors get benefit of taxes u/s 80C for investing in Equity Linked Saving Scheme.

Essay # 8. Disadvantages of Mutual Funds :

Many investors debate whether or not the professionals are any better than you at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still gets paid.

Creating, distributing, and running a mutual fund is an expensive proposition. Everything from the manager’s salary to the investors’ statements cost money. Those expenses are passed on to the investors. Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund.

3. No Customized Portfolios:

The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.

4. Dilution:

It’s possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don’t make much difference on the overall return

5. Difficulty in Selecting a Suitable Fund Scheme:

Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives

When a fund manager sells a security, a capital-gains tax is triggered. Investors who are concerned about the impact of taxes need to keep those concerns in mind when investing in mutual funds.

Related Articles:

• Mutual Funds: Compilation of Essays on Mutual Funds | Financial Management
• Calculating the Return on Mutual Funds (Formula) | Financial Management
• Determining the Variability of Return on Mutual Funds | Financial Management
• Classification of Mutual Funds

We use cookies

Privacy overview.

Your Article Library

Mutual funds: essay on mutual funds (475 words).

ADVERTISEMENTS:

Mutual Funds: Essay on Mutual Funds!

Investors have a basic choice: they can invest directly in individual securities, or they can invest indirectly through a financial intermediary. Financial intermediaries gather savings from investors and invest these monies in a portfolio of financial assets.

Image Courtesy : omgtoptens.com/wp-content/uploads/2013/09/mutual_funds_india.jpg

Mutual Fund:

A mutual fund is a type of financial intermediary that pools the funds of investors who seek the same general investment objective and invests there in a number of different types of financial claims (e.g., equity shares, bonds, money market instruments).

These pooled funds provide thousands of investors with proportional ownership of diversified portfolios managed by professional investment managers. The term ‘mutual’ is used in the sense that all its returns, minus its expenses, are shared by the fund’s unit holders.

Mutual fund investing vs. investing through banks:

Mutual funds are only one kind of financial intermediary. Bank is the largest intermedi­ary in the financial system. Thousands of depositors pool their savings in a bank. However, investments in banks entitle the depositors to different financial claims than the one generated by the mutual funds.

Pass-Through Structure:

In a sense, mutual fund is the purest form of financial intermediary because there is almost perfect pass through of money between unit holders (savers) and the securities in which the fund invests.

Unit holders are indicated a-priori in what type of securities their funds will be invested. Value of the securities held in the fund portfolio is trans­lated on the daily basis directly to the value of the fund units held by the unit holders.

By contrast, a commercial bank is not a pass through type of financial intermediary. Banks collect deposits from depositors (savers). The depositors have no specific know­ledge of how their funds will be used.

Bank invests the monies of the depositors in loans & advances which the bank officers feel appropriate at the time. On the deposits collected banks usually give a specified rate of return (interest) that is not linked to the performance of its loans & advances portfolio.

How Risky is a Mutual Fund Investors May Lose Money in a Mutual Fund:

It is important to understand that a mutual fund is as risky as the underlying assets in which it invests. Though regulations ensure disciplined investments and ceilings on expenses that are charged to the unit holders, unit holders assume investment or market risk, including the possible loss of principal, because mutual funds invest in securities whose value may rise and fall.

Unlike bank deposits, mutual funds are not insured under Deposit Insurance and Credit Guarantee Corporation Act, 1961Of course there is also an upside to investment or market risk. Generally speaking, if you aspire for higher returns then you have to take greater risk. One has to evaluate the riskiness of a mutual fund from the assets it invests.

Related Articles:

• The Structure of Mutual Funds in UK Organizations
• Mutual Funds: Rationale for and Strengthening the Mutual Funds

Mutual Funds

No comments yet.

Leave a reply click here to cancel reply..

You must be logged in to post a comment.

•   OpenBU
• Theses & Dissertations
• Boston University Theses & Dissertations

Two essays on mutual funds

Date Issued

Export Citation

Permanent link, collections.

• Boston University Theses & Dissertations [9434]

Show Statistical Information

Deposit Materials

Release: Trends in Mutual Fund Investing

Trends in mutual fund investing july 2024.

Washington, DC; August 29, 2024 —The combined assets of the nation’s mutual funds increased by $388.84 billion, or 1.4 percent, to $27.48 trillion in July, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.

Total Net Assets of Mutual Funds* Billions of dollars

* Data for exchange-traded funds and funds that invest primarily in other mutual funds were excluded from the series.

Note: Components may not add to the total because of rounding.

Net New Cash Flow of Mutual Funds* Millions of dollars

Note: Components may not add to the total because of rounding. 

Highlights: Long-term funds—equity, hybrid, and bond funds—had a net outflow of $57.75 billion in July, versus an outflow of $53.46 billion in June.

Equity funds posted an outflow of $60.42 billion in July, compared with an outflow of $38.72 billion in June. Among equity funds, world equity funds (U.S. funds that invest primarily overseas) posted an outflow of $9.24 billion in July, versus an outflow of $1.76 billion in June. Funds that invest primarily in the United States had an outflow of $51.18 billion in July, versus an outflow of $36.96 billion in June. The liquidity ratio of equity funds (the percentage of liquid assets over total net assets) was 1.8 percent in July, compared with 1.7 percent in June.

Hybrid funds posted an outflow of $11.01 billion in July, compared with an outflow of $8.68 billion in June.

Bond funds had an inflow of $13.67 billion in July, compared with an outflow of $6.06 billion in June. Taxable bond funds had an inflow of $11.23 billion in July, versus an outflow of $5.50 billion in June. Municipal bond funds had an inflow of $2.45 billion in July, compared with an outflow of $554 million in June.

Money market funds had an inflow of $26.37 billion in July, compared with an outflow of $6.53 billion in June. In July funds offered primarily to institutions had an outflow of $2.50 billion and funds offered primarily to individuals had an inflow of $28.87 billion.

Number of Mutual Funds

About ICI’s Data

Data for prior dates reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. For more information about ICI data and classifications, please visit our FAQs .

If you have any questions or would like to request additional comments on this or data on another topic, please contact a member of ICI’s Media Relations team at [email protected] .

We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here . By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service .

New to Zacks? Get started here.

Member Sign In

Don't Know Your Password?

• Zacks #1 Rank
• Zacks Industry Rank
• Zacks Sector Rank
• Equity Research
• Mutual Funds
• Mutual Fund Screener
• ETF Screener
• Earnings Calendar
• Earnings Releases
• Earnings ESP
• Earnings ESP Filter
• Stock Screener
• Premium Screens
• Basic Screens
• Thematic Screens
• Research Wizard
• Personal Finance
• Money Management
• Retirement Planning
• Tax Information
• My Portfolio
• Create Portfolio
• Style Scores
• Testimonials
• Zacks.com Tutorial

Services Overview

• Zacks Ultimate
• Zacks Investor Collection
• Zacks Premium

Investor Services

• ETF Investor
• Home Run Investor
• Income Investor
• Stocks Under $10
• Value Investor
• Top 10 Stocks

Other Services

• Method for Trading
• Zacks Confidential

Trading Services

• Black Box Trader
• Counterstrike
• Headline Trader
• Insider Trader
• Large-Cap Trader
• Options Trader
• Short Sell List
• Surprise Trader
• Alternative Energy

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.

If you wish to go to ZacksTrade, click OK . If you do not, click Cancel.

Image: Bigstock

Is American Funds New Economy A (ANEFX) a Strong Mutual Fund Pick Right Now?

If you're looking for a Global - Equity fund category, then a potential option is American Funds New Economy A ( ANEFX Quick Quote ANEFX - Free Report ) . ANEFX has a Zacks Mutual Fund Rank of 3 (Hold), which is based on various forecasting factors like size, cost, and past performance.

We note that ANEFX is a Global - Equity option, an investment area loaded with different options. While Global - Equity mutual funds invest their assets in large markets--think the U.S., Europe, and Japan--they aren't limited by geography. Their investment technique is one that leverages the global economy in order to offer stable returns.

History of Fund/Manager

American Funds is based in Los Angeles, CA, and is the manager of ANEFX. American Funds New Economy A made its debut in December of 1983, and since then, ANEFX has accumulated about $16.05 billion in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. ANEFX has a 5-year annualized total return of 10.96% and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 2.73%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 0%, the standard deviation of ANEFX over the past three years is 18.5%. Looking at the past 5 years, the fund's standard deviation is 18.32% compared to the category average of 92%. This makes the fund less volatile than its peers over the past half-decade.

Risk Factors

With a 5-year beta of 0.95, the fund is likely to be less volatile than the market average. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. Over the past 5 years, the fund has a negative alpha of -2.78. This means that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, ANEFX is a load fund. It has an expense ratio of 0.75% compared to the category average of 21%. Looking at the fund from a cost perspective, ANEFX is actually cheaper than its peers.

This fund requires a minimum initial investment of $250, and each subsequent investment should be at least $50.

Fees charged by investment advisors have not been taken into considiration. Returns would be less if those were included.

Bottom Line

Overall, American Funds New Economy A ( ANEFX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, better downside risk, and lower fees, American Funds New Economy A ( ANEFX ) looks like a somewhat average choice for investors right now.

Want even more information about ANEFX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report free:.

NEW ECONOMY FUND (ANEFX) - free report >>

Published in

This file is used for Yahoo remarketing pixel add

Due to inactivity, you will be signed out in approximately:

• Search Search Please fill out this field.
• An Overview

Mutual Funds

Key differences, the bottom line, etf vs. mutual fund: what's the difference.

• Investing: An Introduction
• Stock Market Definition
• Primary and Secondary Markets
• How to Buy/Sell Stocks
• Market Hours
• Stock Exchanges
• How to Start Investing in Stocks: A Beginner’s Guide
• What Owning a Stock Means
• The Basics of Order Types
• Position Sizing
• Executing Trades
• When to Sell a Stock
• Income, Value, Growth Stocks
• Commissions
• Investing and Trading Differences
• Stocks vs. ETFs
• Stocks vs. Mutual Funds
• ETFs vs. Mutual Funds CURRENT ARTICLE
• What Is a Bond?
• Bond Yield Definition
• Basic Bond Characteristics
• How to Buy a Bond
• Corporate Bonds
• Government Bonds
• Municipal Bonds
• Options vs. Futures
• Essential Options Trading
• Diversification
• Measuring Investment Returns
• Corporate Actions
• Stock Fundamentals
• Essentials of Analyzing Stocks
• Evaluating Company Financials
• Technical Analysis

ETF vs. Mutual Fund: An Overview

An investor's portfolio may include stocks, bonds, and sectors with value or growth options, and investors commonly decide whether a mutual fund  or exchange-traded fund (ETF)  meets their financial goals.

Mutual funds and ETFs can hold portfolios of investments like stocks , bonds, or commodities. They both adhere to the same regulations, like what they can own or how much can be concentrated in one or a few holdings.

Both can be good options for investors but have some key differences that make one better suited than the other concerning an investor's investment goals.

Key Takeaways

• Mutual funds and ETFs may hold stocks, bonds, or commodities.
• Both can track indexes, but ETFs tend to be more cost-effective and liquid since they trade on exchanges like shares of stock.
• Mutual funds can offer active management and greater regulatory oversight at a higher cost and only allow transactions once daily.

Exchange-traded funds trade on exchanges just like common stocks. Most ETFs are index-tracking and aim to match the returns and price movements of an index, such as the S&P 500 , by assembling a portfolio that matches the index constituents.

Passive management generally makes ETFs cheaper than mutual funds with lower expenses than index-tracking mutual funds. Because buyers and sellers are doing business with one another, the managers have far less to do. The ETF providers want the price of the ETF to align as closely as possible to the net asset value of the index. To do this, they adjust the supply by creating new shares or redeeming old shares.

In January 2024, the Securities and Exchange Commission (SEC) approved the first  spot market Bitcoin ETFs listed on the  NYSE Arca ,  Cboe BZX , and  Nasdaq  exchanges.  

Mutual funds are commonly managed by financial institutions such as Vanguard, T. Rowe Price, and BlackRock, either directly or through a brokerage firm. The purchase of a mutual fund is executed at the net asset value of the fund based on its price at the market close .

When investors sell shares, the same process occurs, but in reverse. Some mutual funds assess a penalty of up to 2% of the shares’ value for selling early, typically sooner than 90 days after purchase.

Mutual funds can track indexes , but most are actively managed. Actively managed funds incur high costs for analysts, economic and industry research, company visits, and administration. That typically makes mutual funds more expensive to run—and for investors to own—than ETFs.

Investors only pay capital gains taxes when they sell ETF shares. By holding on to shares, investors delay paying taxes until shares are sold.

• Buying and selling can occur at any point during a trading session at market pricing.
• ETFs are not priced at the end of the day.
• There’s no minimum holding period. This is especially relevant in the case of ETFs tracking international assets, where the price hasn’t yet been updated, but the U.S. market’s valuation of it has.
• ETFs can reflect the new market reality faster than mutual funds can.
• Investors in ETFs and mutual funds are taxed based on the gains and losses incurred within the portfolios. ETFs engage in less internal trading, and less trading creates fewer taxable events.
• ETFs generally have lower expense ratios than mutual funds.
• Mutual funds can be purchased in fractional shares or fixed dollar amounts.
• Minimum initial investments for mutual funds are a base dollar amount and not based on the fund's share price.
• Investors benefit from professional managers when the fund is actively managed.

When Does a Taxable Event Occur for an ETF?

For an all-ETF portfolio, the tax will generally be an issue only if and when investors sell their shares. Just like mutual funds, if an ETF pays dividends, those count as taxable income.

When Are Investors Liable for Gains Earned From a Mutual Fund?

Unless individuals invest through 401(k) or other tax-favored vehicles, mutual funds will distribute taxable gains to investors, even if they merely hold the shares.

What Is Meant by an Open-End or Closed-End Fund?

Mutual funds and ETFs are both open-ended. The number of outstanding shares can be adjusted up or down in response to supply and demand. A closed-end fund (CEF) does not continuously offer its shares for sale but instead sells a fixed number once.

ETFs and mutual funds are baskets of individual securities like stocks or bonds. Both offer exposure to a variety of asset classes. Investors can gain more diversification from a mutual fund or ETF than investing in a single stock or bond.  

U.S. Securities and Exchange Commission. " Statement on the Approval of Spot Bitcoin Exchange-Traded Products ."

Fidelity. " Mutual Fund Fees and Expenses ."

Internal Revenue Service. " Topic No. 409 Capital Gains and Losses ."

Internal Revenue Service. " About Form 1099-Div, Dividends and Distributions ."

Internal Revenue Service. " Mutual Funds (Costs, Distributions, Etc.) 4 ."

• Terms of Service
• Editorial Policy
• Privacy Policy

The Economic Times daily newspaper is available online now.

Quant mutual fund tops list of laggard schemes with negative returns in one month.

The first eight funds in the list of losers were from Quant Mutual Fund. Quant ELSS Tax Saver Fund lost 1.08% in the last one month period. Quant Value Fund lost around 1.03% in the said period. Quant Large Cap Fund and Quant Mid Cap Fund lost 0.97% and 0.91% respectively.

Best MF to invest

Looking for the best mutual funds to invest? Here are our recommendations.

Read More News on

(Catch all the Mutual Fund News , Breaking News , Budget 2024 Events and Latest News Updates on The Economic Times .)

Subscribe to The Economic Times Prime and read the ET ePaper online.

Why India needs its biggest port Vadhavan, more now than ever

FOMO overriding fundamentals? What makes India’s top shipbuilder sail despite downside calls

Is a discount of up to 3% enough to tempt Indians buy into auto scrappage?

How Tata Motors is breaking the silence of EVs, and making them roar instead

RBI and Fed are singing different tunes as world awaits next payments tech wave

Once derided, startups are now market darlings marching to Nifty 50

Find this comment offensive?

Choose your reason below and click on the Report button. This will alert our moderators to take action

Reason for reporting:

Your Reason has been Reported to the admin.

To post this comment you must

Log In/Connect with:

Fill in your details:

Will be displayed

Will not be displayed

Share this Comment:

Uh-oh this is an exclusive story available for selected readers only..

Worry not. You’re just a step away.

Prime Account Detected!

It seems like you're already an ETPrime member with

Login using your ET Prime credentials to enjoy all member benefits

Log out of your current logged-in account and log in again using your ET Prime credentials to enjoy all member benefits.

To read full story, subscribe to ET Prime

₹34 per week

Billed annually at ₹2499 ₹1749

Super Saver Sale - Flat 30% Off

On ET Prime Membership

Unlock this story and enjoy all members-only benefits.

Offer Exclusively For You

Save up to Rs. 700/-

ON ET PRIME MEMBERSHIP

Get 1 Year Free

With 1 and 2-Year ET prime membership

Get Flat 40% Off

Then ₹ 1749 for 1 year

ET Prime at ₹ 49 for 1 month

Freedom Offer

Get flat 20% off on ETPrime

90 Days Prime access worth Rs999 unlocked for you

Exclusive Economic Times Stories, Editorials & Expert opinion across 20+ sectors

Stock analysis. Market Research. Industry Trends on 4000+ Stocks

​Get 1 Year Complimentary Subscription of TOI+ worth Rs.799/-​

Stories you might be interested in