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What US investors consider when selecting mutual funds

What US investors consider when selecting mutual funds

According to survey results released by the Investment Company Institute (ICI), “the vast majority of mutual fund investors” in the United States of America “consider fees and expenses when selecting a fund.” The report found that nearly 90% of American households that own mutual funds reviewed fund fees and expenses in 2020.



In addition, 40% of those that reviewed fund fees indicated that the information on fees and expenses were “very important” to their fund selection. The report, titled: “What US Households Consider When They Select Mutual Funds, 2020,” also showed that more than 90% of mutual fund investors put the historical performance of mutual funds into consideration while selecting mutual funds.

Again, 50% of those said that information on historical performance was “very important” to the selection and purchase of a mutual fund.



 

In the words of ICI’s Senior Director of Retirement and Investor Research, Sarah Holden, “Investors consider a variety of factors when choosing mutual funds, including the fund’s fees and expenses, the historical performance of the fund, and the risk level of the fund’s investments.”

Continuing, she noted that, “By carefully considering all aspects of a mutual fund, investors are able to make informed choices as they save for retirement and other financial goals.”



 

Other very important pieces of information that the report noted that investors put into consideration while choosing mutual funds are the fund’s objective, investment risk as well as rating.

According to the report, 91% of US households that owned mutual funds in 2020 considered fund objective in their mutual fund selection and with 35% saying that information on fund objective was “very important” in the process.

 

In the same way, 91% said that they considered the risk level of a fund’s investments when selecting mutual funds with 38% saying that risk level information was “very important” in the mutual fund selection decision-making process.

Not as many investors considered mutual fund rating when selecting a fund, as only 76% of households that owned mutual funds in the US in 2020 took fund rating into consideration in their selection process. Likewise, only 19% said that rating information was a “very important” fund selection decision-making variable.

What factors do Nigerian investors consider?

It is believed that Nigerian mutual fund investors do and should consider similar factors when selecting mutual funds. Unfortunately, those important decision-making variables that are readily available in the US are not as readily available in Nigeria. So even if investors are willing to consider them, they (the investors) may be unable to because of non-availability.

In the US for example, fund managers are required and they publish 5-year monthly fund performance as part of a fund’s fact sheet. That may not be said about Nigerian mutual funds.

In the same way, US fund managers are required and they publish the holdings information about their funds which gives the investors an idea of what they are indirectly investing in through their mutual fund positions. Unfortunately, in Nigeria, only a handful of funds reveal the top 5 to 10 position holdings of their fund while some only indicate the sectors the funds are invested into without specifying the actual investments.

While more and more fund managers are revealing the risk level of their funds, there is a need for all funds to reveal that information so that all funds will be on the same level playing field. Many mutual fund investors do not know what the expense ratio of their funds is and yet, this is and should be a “very important” decision-making variable in selecting mutual funds.

Fund Managers can do better

The above indicates that to grow the Nigerian mutual fund industry, a lot needs to be done both by the fund managers and the regulatory authorities to not only make the industry more transparent but more importantly, provide investors with the information and data that they need to make informed decision as noted by Sarah Holden.

 

Culled.



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