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Are fund management fees worth it?

By Finserv MARKETS - Oct 15,2019
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Are fund management fees worth it?

Mutual funds have historically been among the safest investment instruments. A large part of this is because their performance is constantly monitored by fund managers who actively take decisions on investing the fund. The fund manager is supposed to constantly monitor the market conditions, and place the funds in securities that he believes will drive the highest returns while posing the least amount of risk. All of this is done in performed in accordance with the risk appetite of the investor. For instance, there are different types of mutual funds across which investment can be made.

When you invest in mutual funds on Finserv MARKETS, you can choose between investing in the best mutual funds across equities, debts as well as Hybrid Mutual Funds which provide a mix of both kinds. The percentage of allocation across securities is made on the basis of the investor’s risk appetite. Investing in top mutual funds on Finserv MARKETS allows investors to track best mutual funds through an online Customer Profile which provides real-time portfolio insights.

To actively monitor and provide insights to investors while also best investing their resources, is a function performed by the fund manager. A certain fee is charged for the provision of this service. On Finserv MARKETS, you can choose to invest in Direct Mutual Funds wherein 0% commission is paid out to the intermediary, who provides minimal guidance to investors in terms of investing. This is advised only for experienced investors who are familiar with market conditions, actively follow them and are able to understand the market in depth.

The fee involved in putting together top mutual funds, which are charged by the fund manager in the form of operating expenses, is expressed in the form of an expense ratio. A fund with an expense ratio of 0.9% would imply that for every Rs. 1000 invested, Rs. 9 would be charged towards operating expenses. In a fund with an expense ratio of 1.6%, the operating expense would be Rs. 16 for every Rs. 1000 invested. This expense ratio is not charged directly from the investor’s account, but the returns received by them are already net of these fees.

In terms of the amount of participation by fund managers, there are two types of mutual funds. These include actively managed funds and index funds. While index funds follow the performance of a certain index and track it, with its own returns being generated in response to it; actively managed funds require the intervention of a fund manager who tracks the market and decides the allocation of funds. There are several advantages involved in associating with investing in best mutual funds that are actively managed. Read on below to learn about them.

1.Flexible and Opportunistic:

In a passive fund or an index fund, the fund manager has to follow the performance of an index and cannot divert funds to better performing funds, despite prevailing market conditions. However, with actively managed funds, the fund manager has the freedom and the flexibility to invest to invest in funds that are performing even better than the index funds. This allows the fund manager to be opportunistic, which can often result in higher returns for investors.

2.The Ability to Outperform

Actively managed funds, owing to the flexibility afforded to fund managers, may be able to outperform the market owing to their freedom from following only funds of a certain index. On the other hand, since passively managed funds are essentially trailing the performance of a single benchmark index, returns from them are in line with market returns. Owing to fund manager fees, the returns generated by index funds are bound to be lesser than the returns generated by the market. However, with actively managed funds, where fund managers can actively shift their resources to top mutual funds, the chance to outperform the market returns are high. Thus, with actively managed funds, investors have a chance of receiving returns which are higher than existing market returns. To ensure the success of actively managed funds and to ensure the best returns, it is important to find fund managers who have a proven history of investing in different types of mutual funds and successfully beating the market odds. It is best to have an idea of market conditions, before appointing a fund manager to manage your funds.

Owing to the inherent ability of actively managed funds to generate higher returns than existing market returns, it can be worthwhile to pay the fund management fees and ensure high returns. However, it is important to ensure that the expense ratio does not significantly bring down the returns generated.

By investing in the best mutual funds on Finserv MARKETS, you can get access to insights on your portfolio on a regular basis. You can receive advice and guidance from a fund manager, and you can also choose to invest in a Direct Managed Fund which charges 0% as commission fees.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522