The concept of mutual funds is interesting as well as easy to understand. Mutual funds are a form of systematic investment that can generate huge returns in the long term. However, choosing mutual fund largely depends on the following factors:
- Age of the investor
- Risk taking ability of the investor
- Time span for investment
- Amount to be invested
At a young age, a person has relatively less responsibilities, and the savings ratio is high. If these savings are invested in certain cheap mutual funds for young investors, they would be able to get decent returns after five to ten years which can be utilized to make bigger purchases. Youngsters should not keep idle cash with them, as this can affect their wealth creation targets negatively. Given below are some of the best mutual funds for young investors.
Mid Cap Funds
Though most of the top 10 mutual funds for young investors are large cap funds, some quality mid-cap funds can be helpful for young investors. These funds mainly invest in mid cap stocks which are considered to be pretty volatile. However, with proper fund management and investment in established companies, risk can be considerably reduced. Returns from mid cap funds can be as high as 25% in a good market.
Sector funds can be the best investments for young investors. The sector funds concentrate on particular sector of the economy. While one sector fund will concentrate on banking and financial services, the other can have stocks from the construction and infrastructure sector. Because of this, investors can benefit from the 8 advantage of high growth in this sectors and protect their capital from losing in other non performing sectors.
Diversified funds can be among the best mutual funds for young investors. These funds average out the risk by having good stocks from all sectors of the economy. So, in a poorly performing market, a diversified mutual fund can protect your wealth from reducing greatly.
About Small Cap Funds
As the name suggests, the small cap funds are known to have shares of small companies in their portfolio. Since these stocks can be beaten down heavily in a bear market, investors with low risk taking ability should avoid them completely. For the adventurous investors, such funds can be an opportunity to pocket unexpected gains.
Ideal Funds for Young Investors
- American Funds - Capital Income Builder
- Templeton Global Bond Adv
- Vanguard Wellington
- Vanguard STAR
- Pax World Balanced
- MainStay ICAP Select Equity I
- T. Rowe Price Spectrum Growth
- Fidelity Contrafund
Mutual Fund Tips for Young Investors
Here are some of the important mutual fund tips for young investors:
- Before you choose a fund, study its offerings carefully and check whether you would be able to meet your goals with them
- Check the reputation of the mutual fund company before you sign up
- Mutual fund ratings can help you select a good fund without falling prey to poorly managed funds
- Have long time term plans to get maximum benefits of mutual funds
- Take help from an experienced financial planner to choose the correct fund for yourself
- Avoid taking too many funds and concentrate on the top few funds for assured returns
So, this content will definitely help you plan your investments. This is a much safer route for investors than direct stock investments and so, make the most of this opportunity. Good luck!
DISCLAIMER: This article is just for reference purposes and does not recommend any investments.