a research paper on mutual funds

ORIGINAL RESEARCH article

Determinants of investment behavior in mutual funds: evidence from pakistan.

• 1 Lyallpur Business School, Government College University, Faisalabad, Pakistan
• 2 Department of Management Sciences, University of Gujrat, Gujrat, Pakistan

This paper aimed to provide empirical evidence on the behavior of the investor toward mutual funds by considering its relationship with risk perception (RP), return perception (Return P), investment criteria (IC), mutual fund awareness (MFA), and financial literacy (FL). Data were collected using a questionnaire from 500 mutual fund investors, from which 460 questionnaires were used for the analysis. In addition, the snowball sampling technique was used to collect data from different cities in Pakistan. The result showed that RP, Return P, and MFA are insignificant and negatively affect the behavior of mutual fund investors. Investment criteria have a negative and significant effect on the behavior of mutual fund investors. Financial literacy has a positive and insignificant effect on the behavior of mutual fund investors. The results provide better information and guidance to investors and policymakers on the factors that affect the behavior of mutual fund investors.

Introduction

A mutual fund is one of the professionally well-managed portfolios that typically pool funds for purchasing different shares from a variety of investors. Mutual funds utilize the wealth of small investors and families and make them available in the form of shares in business avenues, such as securities, bonds, and other financial instruments, to the economy. Mutual funds are very important for any market operation since risk control is also the most important issue, and it is important to analyze multiple variables that impact investors. In addition, the mutual fund makes it easier for small investors who do not have adequate knowledge, expertise, and low-risk tolerance to invest their savings in profitable portfolios by more skilled fund managers. To achieve a return for clients, these skillful technical managers target profitable and outperforming financial instruments.

In 1774, when the nation faced a massive downturn in its banking industry, the first mutual fund was launched in the Netherlands, followed by North America in 1924, and since 1980, the mutual fund has been a critical investment pool around the world. The mutual fund was first established in Pakistan in 1962 by the investment corporation. The Pakistan mutual funds association is described to be using mutual funds as a pooled investment system using a holistic approach ( Ahmed and Siddiqui, 2020 ). Mutual fund investing is a risky investment operation. This could be due to poor production of the asset class, change in design, and increases in high return costs. Sometimes the loss can also be related to the shift of the successful fund manager, which will allow you to generate a profit ( Kaveri and Bindu, 2017 ). Earlier research indicates that people with low-level financial literacy (FL) face personal financing issues such as savings, lending, investments, and pension plans. Hence, the judgment on investment means that particular transactions include risks and revenues, and a certain intensity of FL is needed to understand the risks and revenues involved with such purchases ( Assefa and Durga Rao, 2018 ).

The investment behavior of an individual may be studied under the theory of planned behavior as an extension of the theory of reasoned action. The theory of reasoned action if that purpose is the immediate falling of their behavior. It suggests that the behavior of an individual, which in turn is the responsibility of the attitude to an active and subjective norm, should be governed by his/her behavioral intention ( Kaur and Kaushik, 2016 ). This investing scheme is meant for those who want to invest in securities such as equity, stocks, instruments of the money market, and related assets. Mutual funds, especially in recent years, are an increasingly favored investment mode; this is apparent from the growing number of AMC funds. In 2018, the overall asset management companies (AMCs) stood at 20 with 248 funds under management with an average percentage shift of 40% for the year. The number of newly launched funds is another development that reflects the boom in the mutual fund market, with open funds facing rapid growth. According to the latest data released by the mutual fund association of Pakistan, the current amount of funds under administration as of December 2018 is Rs. 584 billion compared with Rs. 408 billion in 2014, reflecting a significant rise of 43% in 5 years. The tremendous number of mutual fund investors worldwide, especially in developed countries, indicates the option of investment. With the value of mutual funds and growth opportunities outlined above, mutual funds are becoming the center of focus, especially for researchers. Different authors conducted various facets of mutual funds, such as the effect of marketing with passively and actively managed funds, participation in foreign funds, and many more ( Ahmed and Siddiqui, 2020 ).

According to Kaur and Kaushik (2016) , perception has two dimensions: risk perception (RP) and return perception (Return P). First, perception is a method through which people look, evaluate, identify, and respond to all types of environmental information. Second, perception is a process through which a person tries to explain sensory data preeminently to help facilitate the participant to make a final verdict based on his intensity of experience and experience. The definition of “risks perception” applies to how investors perceive the risk of financial assets according to concern and experience. Risk perception implies an assumption that a risk arising is unbiased or incoherent or the degree, extent, and timing of its consequences retained by a person, group, or society is a significant success factor in facilitating good decision-making in risky situations. The fact that every investor has a tolerance to risk and RP complicates the study of financial risk. Therefore, a major factor that affects investment decisions is the RP of investors ( Sindhu and Kumar, 2014 ).

Investment criteria (IC) consist of defined parameters for evaluating the acquisition goal valued by financial and strategy purchasers. Sophisticated buyers typically have two criteria sets: the requirements that are revealed to brokers and investment bankers publicly so that they know how the user is looking to make appropriate contracts and the parameters for internal review that have been established to allow buyers to make quick decisions on whether the transaction should be pursued more closely. Geographical, investment size, or targeting business and industry are the most common publicly disclosed investment requirements. Several investors often disclose requirements regarding the type of investment, including management buyouts, distressed assets, and circumstances of succession. Investment criteria are generally defined as “another equity, which means that investments with the highest turnover rate on capital investment should be selected” ( Chenery, 1953 ).

Awareness programs, especially for institutional investors, are quite necessary to reduce the effect of interrogative or gambler mistakes ( Abbas et al., 2019 ). The research clarified the awareness of investors regarding mutual funds, the perceptions of investors, their priorities, and the level of satisfaction with mutual funds. This study aimed to know about this intensity of awareness for mutual funds and about investor preferences for mutual funds ( Sehdev and Ranjan, 2014 ). Financial literacy can also be described as integrating the knowledge of investors about, and their responsiveness to, financial risks, financial opportunities, informed decisions, information on where to support, and other successful steps to enhance the financial well-being of financial instruments and principles ( Abdeldayem, 2016 ).

The study aimed to (i) determine the choice of the investor on multiple forms of investment in Pakistan; (ii) find the effect of RP on investment behavior of investors toward the mutual fund in Pakistan; (iii) recognize the effects of the perception of return on the investment behavior of investors in Pakistan against mutual funds; (iv) identify the effects of mutual fund awareness (MFA) on the investment behavior of investors in Pakistan; (v) identify the influence of investment parameters on the investment behavior of investors in the mutual fund of Pakistan; and (vi) identify the effects of FL on the investment behavior of investors in the mutual fund of Pakistan.

The significance of this investigation is manifold. The research will cover several key factors of the investment behavior of mutual funds within the Pakistan mutual fund industry. First, it is imperative to appraise FL and its link with investment behavior; moreover, not much research was conducted in Pakistan to identify this relationship. The present review would provide a momentous contribution to behavioral finance through insights into the relationship between FL and investment behavior. This research aimed to identify the components that persuade the investment behavior of investors toward mutual funds. It also focused on the impact of awareness, FL, investment, and perception of investors on their investment behavior toward the mutual funds in Pakistan. As per our knowledge, no research has been conducted in Pakistan using the same variables used in this study.

This research includes new areas such as awareness of the behavior of mutual fund investors toward mutual funds, which has not been influenced in Pakistan, and no systematic study has been done on the behavior of investors in mutual funds. Therefore, this article would add to quality literature on behavioral finance, in particular on the behavior of investors against the mutual fund. The rest of the study is organized as follows. Section Literature Review presents the literature review. Section Methodology outlines the methodology of the study, detailed data source measures, and methodology deployed to test the various hypotheses. Section Results and Discussion provides empirical findings of the study. Finally, Section Conclusion presents the concluding remarks.

Literature Review

According to the base of this study, the research on the determinants of the behavior of the investor in mutual funds shows that evidence from Pakistan could be categorized into two parts: mutual funds and investors. These studies focus on mutual funds to examine the effect of different variables on the behavior of the investor in mutual funds. Also, they generally focus on variables like IC, RP, Return P, MFA, and FL. Examples of some studies related to those variables are given below.

The investment behavior of an individual may be studied under the theory of planned behavior as an extension of the theory of reasoned action. The purpose is to establish an immediate backdrop for the behavior. The theory suggests that the behavior of an individual, which is the attitude to an active and subjective norm, should be governed by his/her behavioral intention ( Kaur and Kaushik, 2016 ). The theory of planned behavior explains the relationship between perceived behavioral control and intentions as this study setting is based on perceived behavioral control and its positive association with intentions (MFA, IC, RP, Return P, and FL).

Prospect theory is a behavioral theory that explains how individuals choose between risky and uncertain options (e.g., percent likelihood of gains or losses). It shows that people consider predicted utility about a reference point (for example, current wealth) rather than absolute outcomes. Thus, according to prospect theory, people are loss-averse, which was established by framing uncertain options. Since people fear losses rather than equal gains, they are more likely to take risks to prevent a loss. This hypothesis corresponds to the following trend with risk due to biased weighting of probabilities (see certainty/possibility effects) and failure aversion ( Kahneman and Tversky, 1979 ; Kahneman et al., 2011 ).

The investing behavior of individual investors is very different from that of institutional investors. Individuals prefer to spend comparatively more in terms of non-tradable properties, such as real estate, hedge funds, or structured goods. The term institutional investor is commonly used to describe an entity, such as a mutual fund, a hedge fund, or a charitable organization, that invests on behalf of others. According to this report, investor behavior is one that an investor demonstrates in the quest for the acquisition, use, assessment, and disposal of products, resources, concepts, or experience to fulfill their needs and wishes. Environmental conditions largely impact the behavior of investors. While these variables are uncontrollable by the markets, they are quite significant in deciding the behavior of an investor. Investor actions, thus, suggest that investors modify their behaviors by purchasing and selling shares/commodities in different conditions ( Elankumaran and Ananth, 2013 ).

Cognitive capacity are features that let a person perceive even before their occurrence to take consolidated action in advance. The cognitive and decision-making processes are significantly connected. This study has also shown that rational thought always seeks to be influenced by cognitive capabilities. The intensity of motivation and possible motivation enhance the cognitive capacity to face a challenging situation ( Sarfraz et al., 2020a ). This study looks at the behavior of the investor to identify better investment paths. Investment strategy is a program intended to assist an individual in choosing the best investment portfolio to benefit them in meeting financial targets within a specific period. Particular investment forms give the lender, the business, and the community more advantages. This research explores the behavior of investors when considering multiple investment options ( Mane and Bhandari, 2014 ).

This study was performed to establish investor understanding of mutual funds, define the source of the information that affects the decision to buy, and define the factors that influence the choice of a particular fund. Among other factors, the study reveals that income schemes and open-ended strategies are more favored than growth schemes and close-ended schemes under the prevalent market conditions. Investors are pursuing security in order of priority for principal, liquidity, and capital growth. Magazines and newspapers are the first sources of information that investors can read about mutual funds/systems and is a major distinguishing factor in choosing mutual fund strategies on investor operation. The study also points out that investors see mutual funds as commodity goods and AMCs and that the consumer product distribution model should be adopted to catch the demand. Various papers and brief essays have been published in financial dailies, periodicals, and technical and academic journals since 1986, illustrating the fundamental definition of mutual funds and highlighting their relevance in the stock market environment. These papers and essays cover numerous elements such as mutual funds control, investor perceptions, investor security, and mutual growth pattern ( Bansal, 2014 ).

In the view of China, the intensity of the replacement of chief executive officers (CEOs) among poor state-owned companies is considerable. The tolerance of the government is also a strong source of bad performance. State-owned companies in China are allegedly managed extensively ( Sarfraz et al., 2020b ). There is a lack of research explicitly conducted to understand the investment behavior of mutual fund investors in Pakistan. Studies conducted on investment behavior in traditional finance have progressed far beyond the viewpoints of Markowitz, whereby investors (supposed to be the logical benefit maximizers) consider anticipated returns and risks on investment opportunities as the only deciding factors in their decision on investment ( Mishra and Kumar, 2016 ).

The effectiveness of a mutual fund relies on the level of awareness and confidence of investors—the pattern of investment changes with education, age, occupation, and gender. The ambition of this inquiry is to assess the intensity of awareness among investors. The research in Tezpur was conducted with a dataset of 99 individuals. The study initiates that investors have little awareness of mutual funds. The awareness of candidates with different educational backgrounds and ethnicity was also significantly different. A study has been done to determine the awareness of mutual funds of an investor to recognizing the sources of information affecting investor decisions and the elements affecting their choices. The study shows that income structures and open systems are needed in the prevailing market environment rather than development schemes and closed systems. Investors are pursuing the protection of principal, profitability, and appreciations in order of importance. The key information sources in the procurement of mutual funds are newspapers and journals. Investment schemes being informed by, and in the service of, an investor, is the main factor ( Chaudhary, 2016 ).

The study initiates that investment in mutual funds relates to investor behavior, which attracts investment in mutual funds. The opinions and perceptions of the investor were studied on several topics, including the variety of mutual fund schemes ( Trivedi et al., 2017 ). According to a research study, Chinese state-owned enterprises have financing challenges, except for state-owned firms, that can be funded through a commercial group. In this perspective, it may be stated that state-owned firms are more vulnerable than non-state-owned firms ( Sarfraz et al., 2020c ).

The study reveals the perception of risk and returns on the mutual funds of the investor. The inquiry examines the perception of an investor on mutual fund risk, returns from mutual funds, transparency, and disclosed practices compared with other financial avenues. The study also demonstrated that mutual funds are not considered a high-risk investment. Igt examined the behavior of investors against mutual funds. The study shows that RPs, current asset distribution, venture losses, investment blend, fund aging capital base, original fund efficiency, investment mixes, and portfolio diversification of an investor have been the main contributors to switching funds in the fund families. The research examined the significant aspects of mutual funds that affected investor perception and investigated the perception gaps between large and small investors based on factors investigated. Investment, return, and future have shown significant factors in the perception of investors of mutual funds ( Dhar et al., 2017 ).

This research is done on FL and its association with financial instruments and financial activity. It concludes that even though individuals are well aware of different financial instruments and have little impact on their financial behavior, they are of limited value in the case of FL. Various other researchers have indicated that psychological influences such as self-control, avoidance, and instant fulfillment are likely to be more associated with financial power than a lack of financial knowledge. Therefore, rather than teaching persons on the economic front, it is more important to understand these behavioral inclinations ( Gupta et al., 2018 ). The perception of risk, the perception of return, criteria of investment are some of the variables discussed in current research. By computing these variables, FL and awareness are used in this research. Until now, very limited evidence is available for research by using these two variables. According to our knowledge, there is no research conducted in Pakistan using these variables. As a result, current research analyses the link between the perception of return, the perception of risk, criteria of investment, awareness, and FL of investor behavior toward investment in mutual funds in Pakistan. It contained questions for RP and Return P, criteria of investment, MFA, and FL. Information about social demographics were obtained through direct questions about age, education, gender, level of savings, marital status, professional education, and income.

Following are the hypotheses of the study.

H1 : Risk perception has a negative effect on mutual fund investment behavior.

H2 : Return perception has a negative effect on mutual fund investment behavior.

H3 : Investment criteria have a negative effect on mutual fund investment behavior.

H4 : Mutual fund awareness has a negative effect on mutual fund investment behavior.

H5 : Financial literacy has a positive effect on mutual fund investment behavior.

Methodology

The study is quantitative, and the type of data is primary. The data were collected through questionnaires containing questions on RP and Return P, criteria of investment, awareness, and FL. Information about social demographics were obtained through direct questions about age, education, gender, level of savings, marital status, professional education, and income. Questionnaires were distributed through emails, social networking sites (Facebook, LinkedIn, etc.), and personal meetings. Out of the 500 distributed questionnaires, 460 responses were considered complete and up to the criteria. The sample included from a selected portion of a population for analysis is 460, and it is also known as the population part. In the research, we run binary logistic regression because the dependent variable is categorical. The explanatory variable in experiments is the one that is exploited; the dependent variable is the one that is examined. We also used Cronbach's alpha to check the reliability of the variables. In this study, the non-probability sampling technique was used to select a sample, that is, snowball sampling. The snowball sample was used to evaluate or analyze recruits from respondents, and it is used when potential participants are difficult to classify. It is called “snowball sampling” since (in theory) more “snow” is collected on the road before the ball is rolled up and is bigger. For example, basic random sampling, where the chances are the same for every respondent being chosen, was not effective. Instead, to select participants, the researchers used their judgment. Measurement of all variables used in the study is mentioned in Table 1 .

Table 1 . Measurement of variables.

The model formulated for regression analysis on basis of model Figure 1 is mentioned below

MFIB, mutual fund investment behavior; IC, investment criteria; MFA, mutual fund awareness; Return P, return perception; RP, risk perception; FL, financial literacy.

Figure 1 . Theoretical framework. The interpretation of Figure 1 is given in the section Methodology.

Investment behavior is described as how the systems are judged, predicted, analyzed, and checked by investors. Decision-making involves the psychology of investing, collecting, identifying, and interpreting knowledge, study, and analysis. Variables used in the study are categorical. Criteria or guidelines under which the planning authority allocates the cumulative sum of the investible funds of the community to different channels are referred to as IC. Perceptions of risk and return are beliefs about the possibility of effect or loss. It is a subjective assessment of the features of risk and the severity of risk taken by individuals. Financial literacy refers to the knowledge and understanding of how money is earned, invested, and saved and the skills and abilities used to make choices by financial resources. These options include how much money to make, save, and spend.

Results and Discussion

The demographic can be described in terms of analysis as a detailed group of people, organizations, institutions, and so on with shared themes of importance to the study. The shared features of the association distinguish them from others, organizations, objects, and so on. Individual investors have been included in the population from across Pakistan.

As shown Table 2 , this research represents 83.26% of participants as male, 16.74% of them as female. This research represents 71.09% of the respondents as married and 28.91% as single. Individuals who fill the questionnaires have different education levels: 6.30% of respondents were matric pass, 43.26% were graduates, and 50.43% were postgraduates or higher during the survey. This research presents 48.04% of respondents having a professional education and 51.96% having no professional education. It also presents 11.96% of respondents as working in a government sector, 27.17% as running their own business, and 60.60% as working in the private sector. Also, 27.61% of the respondents save <10%, 39.35% save 11–20%, 19.78% save 21–30%, and 13.26% save above 30%.

Table 2 . Demographic and socio-economic characteristics of respondents.

In this research, those individuals who responded were between 18 and 52 years. Those individuals who responds to our survey their income level ranges from 10000 to 400,000.

Using Cronbach's alpha, the reliability of the measurements was assessed. Cronbach's alpha helps calculate the reliability of distinct groups and is the most famous test of internal consistency (“reliability”). It is most widely found in a survey/questionnaire with several Likert questions that shape a measure and decides if the scale is accurate. It includes tests of how much variation occurred in the ratings of multiple factors attributed to casual or random errors. As a general rule and a simple measure of building reliability, a coefficient greater or equal to 0.5 is deemed acceptable ( Al-Tamimi, 2006 ). If you have inter-rater reliability issues.

The Cronbach's alpha ( Table 3 ) of the five divisions, specifically, IC, RP, Return P, MFA, and FL, were 0.758, 0.765, 0.705, 0.705, and 0.893, respectively. The Cronbach's alpha indicates that all these divisions are appropriate.

Table 3 . Reliability analysis.

In this research, we run the binary logistic regression because the dependent variable is categorical. The explanatory variable in the experiments is the one used; the dependent variable is the one that is examined. As shown in Table 4 , IC insignificantly affect the behavior of the investor. According to Abbas et al. (2019) , IC positively affect the behavior of the investors. On the other hand, IC have a negative and significant relationship with the behavior of the investor under the coefficient of −0.735, a result consistent with Kaur and Kaushik (2016) , Abbas et al. (2019) , Smith and Albaum (2013) , and George and Mallery (2003) . According to Kaur and Kaushik (2016) , MFA has a positive effect on the behavior of investors. On the other hand, MFA has negative and insignificant relation with the behavior of the investor under a coefficient of −0.195, a result consistent with Chowdhury and Steve (2018) . According to Abbas et al. (2019) , RP and Return P negatively affect investor behavior. Risk perception and Return P both have a negative and insignificant association with investor behavior under the same coefficient of −0.010, a RP result consistent with Kaur and Kaushik (2016) and Abbas et al. (2019) and a Return P result consistent with Abbas et al. (2019) and Barlett et al. (2001) . According to Gangwar and Singh (2018) , FL has a positive and insignificant effect on the behavior of investors. Financial literacy has a positive and insignificant association with investor behavior with a coefficient of 0.287, a result consistent with results of Gangwar and Singh (2018) . Per our knowledge, no research has been conducted in Pakistan using the same variables we used in this study.

Table 4 . Variables in the equation.

This paper empirically investigated the determinants of the behavior of investors toward mutual funds in Pakistan. We established an important association between a mutual fund, the behavior of the investor, demographic characteristics of the respondents, and other variables used in the research. This research used a modified questionnaire that includes 64 items that fit into five divisions: IC, RP, Return P, MFA, and FL. Data were collected from 500 respondents, of which 460 questionnaires were used for the analysis. The logistic regression model was used to analyze the relationship between the variables. Cronbach's alpha was used to test the reliability of the data. Investment criteria is an important factor that affects the behavior of investors. If the investor has a high investment, then the association between IC and the behavior of the investor is positive and it should be negative when investment is low. In the study, the most important variable that affected the behavior of the investor is MFA. Awareness is one of the biggest reasons why investors invest in mutual funds. The behavior of investors depends on the awareness about mutual funds. If the investor has awareness about mutual funds, then there is a positive relationship between these two. If investors do have not much awareness of mutual funds, then the relationship is negative. The relationship between RP and investment behavior, whether positive or negative, depends on how investors perceive risk while investing. Return perception can affect the behavior of the investor in both negative and positive ways. It depends on how the investor perceives the return from investment. Financial literacy association with the behavior of the investor depends on the FL level of the investors. If the investor has a high level of FL, then the relationship is positive. If the investors have a low level of FL, then the association is negative. As per our knowledge, no research has been conducted in Pakistan using the same variables we used in this study.

Implications

The research has implications for mutual funds and regulatory authorities. This inquiry identifies an inadequacy of awareness of mutual funds as a reason for the failure of mutual funds among certain sectors of society. Therefore, the popular funds and regulators need to concentrate their efforts on women, elderly groups, and middle-income groups to increase their knowledge of mutual funds.

The policy implications of this research are numerous. First of all, for fund managers of AMCs, our findings are compelling and insightful because they give further indication of the stimulus of Islamic and traditional funds performing in Pakistan. Furthermore, these results are also valuable for investors and provide them with important information about the characteristics of funds that undoubtedly improve performance.

Limitations and Future Directions

It is suitable for investors who are aware of the professional competence of fund managers to join them to good return by moving to those funds. Investors should evaluate their portfolios on an ongoing basis and review their funds by modifying them as per position in the market to maximize returns.

The study was limited to 460 investors. The research has been conducted to analyze only some factors affecting the investment behavior of investors. The research is conducted only in a few cities. In this research sample, female existence is very low. This research enforced the technique of snowball sampling and may not be representative of the actual population. To educate investors, AMCs can organize seminars and training programs, among other activities, for investors, particularly in times of market fluctuations, economic recessions, market introduction of new products, etc. This will eliminate the uncertainty of the investor and create trust in the industry.

Data Availability Statement

The raw data supporting the conclusions of this article will be made available by the authors, without undue reservation.

Ethics Statement

Ethical review and approval was not required for the study on human participants in accordance with the local legislation and institutional requirements. Written informed consent for participation was not required for this study in accordance with the national legislation and the institutional requirements.

Author Contributions

RS designed the model and the computational framework and analyzed the data. MU carried out the implementation. MB performed the calculations. SS wrote the manuscript with input from all authors. FM conceived the study and was in charge of overall direction and planning, supervised the findings of this work. All authors contributed to the article and approved the submitted version.

Conflict of Interest

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a po tential conflict of interest.

Abbas, K. S., Usman, M., and Aftab, M. (2019). Public and private sector response to mutual funds in Pakistan using binary logistic regression. Rev. Cienc. Soc. Human. 4, 728–737.

Google Scholar

Abdeldayem, M. M. (2016). Is there a relationship between financial literacy and investment decisions in the kingdom of Bahrain? Manage. Admin. Sci. Rev. 5, 203–221.

Ahmed, S., and Siddiqui, D. A. (2020). Factors affecting fund flows in islamic and conventional mutual funds of Pakistan. SSRN Electron. J . doi: 10.2139/ssrn.3681179

CrossRef Full Text | Google Scholar

Al-Tamimi, H. A. H. (2006). Factors influencing individual investor behavior: an empirical study of the UAE financial markets. Bus. Rev. 5, 225–233.

Assefa, M., and Durga Rao, P. V. (2018). Financial literacy and investment behavior of salaried individuals: a case study of Wolaita Sodo Town. Int. J. Bus. Manage. Invent. 7, 43–50.

Bansal, S. (2014). Investor's perception regarding mutual funds and other investment tools. J. Int. Acad. Res. Multidiscipl. V2.

Barlett, J. E., Kotrlik, J. W., and Higgins, C. C. (2001). Organizational research: determining the appropriate sample size in survey research. Inform. Technol. Learn. Perform. J. 19, 43–50.

Chaudhary, N. (2016). A study on the awareness level of investors about mutual fund investment. SSRN Electr. J . doi: 10.2139/ssrn.2868325

Chenery, H. B. (1953). The application of investment criteria. Q. J. Econ. 67, 76–96. doi: 10.2307/1884149

Chowdhury, E., and Steve, D. R. (2018). Impact of attitude and awareness of investors on their investment behavior - a study on Bangladesh stock market. Bangl. Account. 50. 81–89.

Dhar, S., Salema, S. M. K., and Saha, A. (2017). Factors affecting individual investor behavior: empirical evidence from mutual fund investors in Dhaka city. Manage. Dev. 31, 79–101.

Elankumaran, A., and Ananth, A. A. (2013). Impacting factors on individual investors' behaviour towards commodity market in India. Res. J. Soc. Sci. Manage. 2, 147–153.

Gangwar, R., and Singh, R. (2018). Analyzing Factors Affecting Financial Literacy and its Impact on Investment Behavior Among Adults in India . Munich personal RePEc Archive, MPRA Paper No. 89452, 1–24. doi: 10.2139/ssrn.3266655

George, D., and Mallery, P. (2003). SPSS for Windows Step by Step: A Simple Guide and Reference 11.0 Update . Boston, MA: Allyn and Bacon.

Gupta, K., Gupta, S. K., and Pathania, K. S. (2018). Analysis of financial awareness and factors affecting selection and purpose of investment options in Himachal Pradesh. IMPACT Int J Res Human Arts Liter. 6, 93–108.

Kahneman, D., Lovallo, D., and Sibony, O. (2011). Before you make that big decision. Harv. Bus. Rev. 89, 50–60.

Kahneman, D., and Tversky, A. (1979). On the interpretation of intuitive probability: a reply to Jonathan Cohen. Cognition 7, 409–411. doi: 10.1016/0010-0277(79)90024-6

Kaur, I., and Kaushik, K. P. (2016). Determinants of investment behavior of investors towards mutual funds. J. Ind. Bus. Res. 8, 19–42. doi: 10.1108/JIBR-04-2015-0051

Kaveri, M., and Bindu, B. (2017). Impact of investors' perception and attitude towards investment decision in mutual funds at Velachery, Chennai. Int. J. Res. Arts Sci. 3, 4–9. doi: 10.9756/IJRAS.10489

Mane, S., and Bhandari, R. (2014). A study of investor's awareness and selection of different financial investment avenues for the investor in Pune City. Int. Res. J. Bus. Manage. 6, 45–51.

Mishra, S. K., and Kumar, M. (2016). “A comprehensive model of information search and processing behavior of mutual fund investors,” in Financial Literacy and the Limits of Financial Decision-Making (Cham: Palgrave Macmillan), 26–56. doi: 10.1007/978-3-319-30886-9_3

Sarfraz, M., He, B., and Shah, S. (2020a). Elucidating the effectiveness of cognitive CEO on corporate environmental performance: the mediating role of corporate innovation. Environ. Sci. Pollut. Res. 27, 45938–45948. doi: 10.1007/s11356-020-10496-7

PubMed Abstract | CrossRef Full Text | Google Scholar

Sarfraz, M., Shah, S., Fareed, Z., and Shahzad, F. (2020b). Demonstrating the interconnection of hierarchical order disturbances in CEO succession with corporate social responsibility and environmental sustainability. Corp. Soc. Respons. Environ. Manage. 27, 2956–2971. doi: 10.1002/csr.2014

Sarfraz, M., Shah, S., Ivascu, L., and Qureshi, M. (2020c). Explicating the impact of hierarchical CEO succession on small-medium enterprises' performance and cash holdings. Int. J. Fin. Econ . 2020, 1–15. doi: 10.1002/ijfe.2289

Sehdev, R., and Ranjan, P. (2014). A study on Investor's perception towards mutual fund investment. Sch. J. Econ. Bus. Manage. 1, 105–115.

Sindhu, K. P., and Kumar, S. R. (2014). Influence of risk perception of investors on investment decisions: an empirical analysis. J. Fin. Bank Manage. 2, 15–25.

Smith, S. M., and Albaum, G. S. (2013). Fundamentals of Marketing Research . Thousands Oaks, CA: SAGE.

Trivedi, R., Swain, K. P, and Dash, P. (2017). A study of investor's perception towards mutual fund decision: an indian perspective. Int. J. Econ. Res . 14, 209–219.

Keywords: mutual fund investors behavior, investment criteria, mutual fund awareness, risk perception, return perception, financial literacy

Citation: Saleem S, Mahmood F, Usman M, Bashir M and Shabbir R (2021) Determinants of Investment Behavior in Mutual Funds: Evidence From Pakistan. Front. Psychol. 12:666007. doi: 10.3389/fpsyg.2021.666007

Received: 02 March 2021; Accepted: 09 June 2021; Published: 12 July 2021.

Reviewed by:

Copyright © 2021 Saleem, Mahmood, Usman, Bashir and Shabbir. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Faiq Mahmood, drfaiqmahmood@gcuf.edu.pk

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

• How Mutual Funds Make Money

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on August 14, 2024

Are You Retirement Ready?

Table of contents, overview of mutual funds.

A mutual fund is a pooled investment structure in which money from numerous investors is collected to buy various assets, such as stocks and bonds. This enables investors to diversify their holdings beyond what they could typically achieve individually.

Professional managers supervise mutual funds, making investment decisions aligned with the fund's goals. These objectives differ, accommodating various investment strategies and risk levels.

There are different types of mutual funds. Equity funds concentrate on stocks for growth, while bond funds focus on fixed-income assets for regular interest. Money market funds offer stability by investing in short-term debt, suiting conservative investors.

On the other hand, hybrid funds blend stocks and bonds, seeking a balance between risk and reward.

Sources of Mutual Fund Income

Capital gains.

Profits from selling assets within a mutual fund are known as capital gains. These gains have different tax implications depending on whether they are short-term (held less than a year) or long-term (held over a year).

Short-term gains are taxed at regular income rates, which are typically higher, affecting investor returns. In contrast, long-term gains benefit from lower tax rates, making them more attractive for long-term investment strategies.

The overall market performance also impacts a mutual fund's capital gains. Rising stock prices in a strong market usually lead to higher gains as investment values increase.

On the other hand, falling prices in a weak market might result in losses if assets are sold below their original purchase price.

Fund managers play a key role in deciding when to buy and sell assets. They aim to maximize gains and minimize losses while adhering to the fund's overall investment plan.

Dividends are periodic payments companies make to their shareholders from their profits, providing mutual funds with a steady income stream.

These payments are typically distributed quarterly, and the amount paid depends on the company's profitability, dividend policy, and overall financial health.

Dividend-paying stocks can significantly enhance the income-generating potential of a mutual fund, particularly those focused on high-dividend stocks.

Such funds aim to provide regular income for investors, especially appealing to those seeking stability and cash flow, such as retirees or conservative investors who prioritize income over capital appreciation.

Moreover, many mutual funds offer a dividend reinvestment plan (DRIP), allowing investors to reinvest their dividends to purchase additional fund shares automatically. This reinvestment can compound returns over time, enhancing the investor's overall portfolio growth.

Interest Income

Interest income is the regular payment received from owning fixed-income investments. Bonds and similar instruments provide consistent interest payments, the amount of which is determined by the issuer's creditworthiness and market conditions.

High-quality bonds from stable entities usually offer lower interest due to their lower risk. Conversely, lower-quality bonds offer higher interest to offset their higher risk.

Fixed-income mutual funds focus on bonds and similar investments to produce interest income. These funds suit investors seeking stable income with less risk than stocks.

The earned interest can be paid out to investors as dividends or used to buy more assets within the fund. Fixed-income funds can help diversify an investor's portfolio, providing stability and reducing overall risk.

Mutual Fund Fees and Expenses

Management fees.

Management fees are what fund managers charge to oversee the mutual fund's assets. These fees are usually a percentage of the total value of assets being managed.

The fund manager's role is vital, involving investment choices, research, and trading activities, which significantly affect the fund's results.

Management fees vary greatly, from under 0.5% for passively managed funds to over 2% for actively managed funds. Although higher fees might be linked to better performance, investors should consider the cost relative to the potential gains.

Expense Ratios

The expense ratio represents the total annual expenses incurred by the mutual fund, expressed as a percentage of its average net assets.

This ratio encompasses various costs, including management fees, administrative expenses, marketing fees (12b-1 fees), and other operational costs. The expense ratio is a critical metric for investors as it directly impacts the fund's net returns.

For example, a fund with a 1.5% expense ratio would need to achieve returns exceeding this percentage just to break even.

Over time, higher expense ratios can significantly erode the investment returns, making it crucial for investors to compare expense ratios among similar funds to ensure they are not overpaying for management and operational costs.

Load fees are sales charges paid by investors when buying or selling mutual fund shares. These fees can be categorized into front-end loads, back-end loads, and no-load funds.

Front-end loads are sales charges paid upfront when purchasing shares, reducing the initial investment amount. For instance, a 5% front-end load on a $1,000 investment means only $950 is actually invested in the fund.

Back-end loads, also known as contingent deferred sales charges (CDSC), are fees paid when selling shares, typically decreasing over time. For example, a fund might charge a 5% fee if shares are sold within the first year, reducing gradually to zero after several years.

No-load funds, as the name suggests, do not charge any sales fees, making them more cost-effective for investors.

Transaction Costs

In addition to the explicit fees mentioned, mutual funds incur transaction costs related to the buying and selling of securities within the fund's portfolio. These costs include brokerage commissions, bid-ask spreads, and market impact costs.

While these expenses are not directly charged to investors, they are embedded in the fund's performance. Frequent trading by active managers can increase transaction costs, potentially diminishing returns.

Therefore, understanding a fund's trading activity and its associated costs can provide insight into the fund's efficiency and overall cost structure.

Soft Dollar Arrangements

Some mutual funds engage in soft dollar arrangements, where a portion of the brokerage commissions paid by the fund is used to obtain research and other services from the brokerage firm.

While these arrangements can benefit the fund by providing valuable research, they may also lead to higher trading costs, as the fund might choose brokers based on the services provided rather than the lowest commission rates.

Other Operational Expenses

Mutual funds also have operational costs like legal and accounting fees, custodial fees, and fees for transfer agents. These costs are necessary for the fund's administration and compliance but add to the overall expense ratio.

For instance, larger funds with more assets under management might benefit from economies of scale, spreading these fixed costs over a larger base, resulting in a lower expense ratio.

Conversely, smaller funds might have higher expense ratios due to the same fixed costs being spread over a smaller asset base.

Strategies for Generating Mutual Fund Returns

Active management.

Active management is when fund managers make independent decisions to beat a specific market benchmark. This strategy requires in-depth research and market predictions to choose assets expected to outperform the overall market.

Fund managers actively trade to take advantage of market opportunities, aiming to achieve higher returns for investors.

While active management could lead to better results, it involves higher fees and more risk due to frequent trading and potential for bad investment choices. Success relies heavily on the manager's skill and judgment.

Investors should carefully evaluate the potential benefits against the increased costs and risks of actively managed funds.

Passive Management

Passive management aims to replicate the performance of a market index by investing in the same securities that make up the index. This strategy involves minimal trading and focuses on long-term growth, offering a straightforward and cost-effective approach to investing.

Index funds and ETFs are common examples of passive management, providing broad market exposure and diversification.

Passive management typically incurs lower fees than active management, requiring less research and fewer transactions. This cost efficiency and lower risk make passive funds attractive to many investors.

However, since passive management aims to match, not beat, the market, its returns will mirror the overall market performance.

Hybrid Approaches

Some mutual funds adopt a hybrid approach, combining active and passive management elements. These funds might passively track an index while allowing for a portion of the portfolio to be actively managed to capitalize on specific opportunities.

Hybrid funds aim to balance the benefits of both strategies, providing broad market exposure with the potential for additional returns from active management.

The Bottom Line

Mutual funds pool money from multiple investors to create a diversified portfolio managed by professionals, offering broader investment access. They generate income through capital gains, dividends, and interest income.

Capital gains come from selling securities at a profit, with tax implications varying between short-term and long-term gains. Dividends provide regular income from company profits, while interest income from bonds offers steady, lower-risk returns.

Investors must also be aware of management fees, expense ratios, and load fees, which impact returns. Transaction costs and soft dollar arrangements can also affect performance.

Mutual funds generate returns using active or passive management strategies. Active management seeks to outperform benchmarks, offering higher returns but at higher costs and risks.

Passive management aims to match market performance, providing a cost-effective, lower-risk option. Some funds combine both strategies.

How Mutual Funds Make Money FAQs

What are mutual funds.

Mutual funds are investment vehicles that pool money from multiple investors to buy a diversified portfolio of securities, managed by professional fund managers.

How do mutual funds generate income?

Mutual funds generate income through capital gains from selling securities, dividends from stocks, and interest income from bonds and other debt instruments.

What fees are associated with mutual funds?

Fees include management fees, expense ratios, and load fees. These costs cover management, administrative expenses, and sales charges, impacting overall returns.

What is the difference between active and passive management?

Active management involves fund managers making investment decisions to outperform the market, while passive management aims to replicate the performance of a market index, offering lower costs and risks.

Why should I consider investing in mutual funds?

Mutual funds offer diversification, professional management, and access to a broad range of investments, making them suitable for investors seeking balanced risk and return.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

• 12b-1 Funds
• 401(k) vs Mutual Funds
• Active vs Passive Mutual Funds
• Are Mutual Funds a Good Investment?
• Average Mutual Fund Return
• Biggest Mutual Funds
• Can You Lose Money on a Mutual Fund?
• Capital Gains and Mutual Funds
• Equity Funds
• Global Fund
• Growth and Income Fund
• How to Choose the Best Mutual Fund
• How to Invest in Gold Mutual Funds
• How to Invest in Mutual Funds
• Income Funds
• Long-Term Mutual Funds
• Low-Risk Mutual Funds
• Minimum Amount for Investing in a Mutual Fund
• Mutual Fund Interest Rates
• Mutual Fund Taxation
• Mutual Funds Trend
• Mutual Funds vs Stocks
• Open-End Management Company
• Total Bond Fund
• Types of Mutual Funds
• When to Sell a Mutual Fund
• Withdrawal Plan

Ask a Financial Professional Any Question

Discover wealth management solutions near you, our recommended advisors.

Claudia Valladares

WHY WE RECOMMEND:

Fee-Only Financial Advisor Show explanation

Bilingual in english / spanish, founder of wisedollarmom.com, quoted in gobanking rates, yahoo finance & forbes.

IDEAL CLIENTS:

Retirees, Immigrants & Sudden Wealth / Inheritance

Retirement Planning, Personal finance, Goals-based Planning & Community Impact

Taylor Kovar, CFP®

Certified financial planner™, 3x investopedia top 100 advisor, author of the 5 money personalities & keynote speaker.

Business Owners, Executives & Medical Professionals

Strategic Planning, Alternative Investments, Stock Options & Wealth Preservation

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.

Fact Checked

At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.

Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.

They regularly contribute to top tier financial publications, such as The Wall Street Journal, U.S. News & World Report, Reuters, Morning Star, Yahoo Finance, Bloomberg, Marketwatch, Investopedia, TheStreet.com, Motley Fool, CNBC, and many others.

This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible.

Why You Can Trust Finance Strategists

Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year.

We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources.

Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos.

Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others.

Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

How It Works

Step 1 of 3, ask any financial question.

Ask a question about your financial situation providing as much detail as possible. Your information is kept secure and not shared unless you specify.

Step 2 of 3

Our team will connect you with a vetted, trusted professional.

Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise.

Step 3 of 3

Get your questions answered and book a free call if necessary.

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

Where Should We Send Your Answer?

Just a Few More Details

We need just a bit more info from you to direct your question to the right person.

Tell Us More About Yourself

Is there any other context you can provide.

Pro tip: Professionals are more likely to answer questions when background and context is given. The more details you provide, the faster and more thorough reply you'll receive.

What is your age?

Are you married, do you own your home.

• Owned outright
• Owned with a mortgage

Do you have any children under 18?

• Yes, 3 or more

What is the approximate value of your cash savings and other investments?

• $50k - $250k
• $250k - $1m

Pro tip: A portfolio often becomes more complicated when it has more investable assets. Please answer this question to help us connect you with the right professional.

Would you prefer to work with a financial professional remotely or in-person?

• I would prefer remote (video call, etc.)
• I would prefer in-person
• I don't mind, either are fine

What's your zip code?

• I'm not in the U.S.

Submit to get your question answered.

A financial professional will be in touch to help you shortly.

Part 1: Tell Us More About Yourself

Do you own a business, which activity is most important to you during retirement.

• Giving back / charity
• Spending time with family and friends
• Pursuing hobbies

Part 2: Your Current Nest Egg

Part 3: confidence going into retirement, how comfortable are you with investing.

• Very comfortable
• Somewhat comfortable
• Not comfortable at all

How confident are you in your long term financial plan?

• Very confident
• Somewhat confident
• Not confident / I don't have a plan

What is your risk tolerance?

How much are you saving for retirement each month.

• None currently
• Minimal: $50 - $200
• Steady Saver: $200 - $500
• Serious Planner: $500 - $1,000
• Aggressive Saver: $1,000+

How much will you need each month during retirement?

• Bare Necessities: $1,500 - $2,500
• Moderate Comfort: $2,500 - $3,500
• Comfortable Lifestyle: $3,500 - $5,500
• Affluent Living: $5,500 - $8,000
• Luxury Lifestyle: $8,000+

Part 4: Getting Your Retirement Ready

What is your current financial priority.

• Getting out of debt
• Growing my wealth
• Protecting my wealth

Do you already work with a financial advisor?

Which of these is most important for your financial advisor to have.

• Tax planning expertise
• Investment management expertise
• Estate planning expertise
• None of the above

Where should we send your answer?

Submit to get your retirement-readiness report., get in touch with, great the financial professional will get back to you soon., where should we send the downloadable file, great hit “submit” and an advisor will send you the guide shortly., create a free account and ask any financial question, learn at your own pace with our free courses.

Take self-paced courses to master the fundamentals of finance and connect with like-minded individuals.

Get Started

To ensure one vote per person, please include the following info, great thank you for voting., get in touch with a financial advisor, submit your info below and someone will get back to you shortly..

Growth and Performance Measurement of ESG-themed Mutual Funds in India An Empirical Investigation

Orissa Journal of Commerce, 43(2), 9-26

18 Pages Posted: 29 Nov 2023

Prof. Shikha Shikha

Shaheed Bhagat Singh College, University of Delhi

Date Written: 2022

The world is witnessing a stupendous rise in Environmental, Social, and Governance (ESG) investment practices due to changing dimensions of risks and consequent clamour for the adoption of sustainable practices. In this scenario, ESG-themed mutual funds have provided an alternative route to ESG investing. This study aims to analyse the growth of ESG mutual funds in India and evaluate their performance using standalone return and risk measures as well as widely recognised risk-adjusted measures, namely, Sharpe Index, Treynor Ratio, Sortino Measure, and Jensen’s Alpha. With respect to growth, the study found that the industry is still in its infancy though a steady and positve momentum is seen both in terms of number as well as assets under their management. Without taking into account the social perks of sustainable investment, the results of the performance analysis revealed Quant ESG Equity Fund to be the best performer. Interestingly, the study also found that all the sample funds have ‘beaten the market’ and earned superior returns. The findings of the study substantiate that ESG investing not only leads to th accomplishment of sustainability goals of investors but also affords them returns higher than the traditional route to investing.

Keywords: ESG mutual funds, Sharpe index, Treynor ratio, Sortino measure, Jensen’s alpha

JEL Classification: G23, M140, G11, G12

Suggested Citation: Suggested Citation

Shikha Gupta (Contact Author)

Shaheed bhagat singh college, university of delhi ( email ), do you have a job opening that you would like to promote on ssrn, paper statistics, related ejournals, socially responsible investment ejournal.

Subscribe to this fee journal for more curated articles on this topic

Environmental, Social & Governance (ESG) Research Hub eJournal

Subscribe to this free journal for more curated articles on this topic

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

5 Top No-Load Mutual Funds to Add to Your Portfolio

High inflation, which has been the biggest threat to the U.S. economy since the end of 2021, is slowly coming down due to aggressive hawkish stances taken by the Federal Reserve. The consumer price index (CPI) for the month of July moderately rose by 0.2% and 3% on a yearly basis, whereas the producer price index (PPI) over the same period also edged up 0.1%. The declining trend in CPI noticed over the past three months, along with a mild rise in PPI last month, suggests that inflation will slowly meet the Fed’s 2% inflation target.

The advance GDP growth rate estimates for Q2 have increased at an annual rate of 2.8% compared with the real GDP growth of 1.4% in Q1. Retail sales also increased 1%, the largest increase since January 2023. Nonfarm payroll jobs totaled 158.7 million through July, an increase of 1.6% from the past year. All eyes are on the Fed chairman’s comments and the upcoming Jackson Hole Symposium.

Why Choose No-Load Mutual Funds Now?

Investors who have disposable income and wish to diversify their portfolio can opt for no-load mutual funds. These passively managed funds don’t have any commission fees, or any other charges for buying and selling that are generally associated with actively managed funds.

The sales charges — referred to as a “front-end load,” which is charged upon purchasing shares, or “back-end load,” which is charged upon the selling of shares — are absent in such funds because shares are distributed directly by the investment company, instead of any third-party involvement like broker, advisor, or other professionals. Even a few additional basis points saved in fees can boost the overall return by minimizing expenses. However, charges like the fund’s expense ratio, 12b-1 fees for marketing, distribution, and service, redemption fees, exchange fees, and account fees are commonly charged even if there is no load.

A Hypothetical Example

The load charges are generally within the range of 0-6%. To understand the math, let’s assume an investor wants to invest$1000 in a mutual fund that has a 5% entry and exit load. Then, $950 [$1000-$50 (5% of $1000)] is left with the mutual fund house to invest. Now, let’s assume the fund has given a 15% return over the year. So, the current value of the portfolio is $1092.5 [$950+ $142.5 (15% of $950)]. Now, when an exit load of 5% is applied, the investor is left with $1037.87 [$1092.5-$54.63 (5% of $1092.5)].

According to the above hypothesis, the return earned by the investor with front and back load is 3.78%, whereas he could have enjoyed a much higher return without load.

Buy 5 No-Load Mutual Funds: FSENX, FSELX, MLPTX, VSMIX, DRGVX

Wise investors looking for higher returns can consider no-load mutual funds as it has a low expense ratio, which can translate into higher returns along with other factors like the fund’s performance history, investment style, risk tolerance, etc.

We have thus selected five no-load mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio of less than 1%. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money ).

Fidelity Select Energy ( FSENX Quick Quote FSENX - Free Report ) fund invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the energy field, including the conventional areas of oil, gas, electricity, and coal, and newer sources of energy such as nuclear, geothermal, oil shale, and solar power. FSENX advisors choose to invest in stocks based on fundamental analysis factors like financial condition and industry position, along with market and economic conditions.

Maurice FitzMaurice has been the lead manager of FSENX since Jan 1, 2020. Most of the fund’s exposure is in companies like Exxon Mobil (24.8%), Cenovus Energy (6.2%) and Schlumberger (5.0%) as of May 31, 2024.

FSENX’s three-year and five-year annualized returns are almost 30.8% and 14.8%, respectively. FSENX has an annual expense ratio of 0.73%.

To see how this fund performed compared to its category and other 1, 2, and 3 Ranked Mutual Funds,  please click here .

Fidelity Select Semiconductors Portfolio ( FSELX Quick Quote FSELX - Free Report ) invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX advisors chooses to invest in stocks based on fundamental analysis factors such as each issuer's financial condition and industry position, and market and economic conditions.

Adam Benjamin has been the lead manager of FSELX since Mar 15, 2020. Most of the fund’s exposure was to companies like NVIDIA (25.0%), NXP Semiconductors (6.7%) and ON Semiconductors (6.7%) as of May 31, 2024.

FSELX’s three-year and five-year annualized returns are nearly 28.3% and 35.3%, respectively. FSELX has an annual expense ratio of 0.67%.

Invesco SteelPath MLP Select 40 Fund ( MLPTX Quick Quote MLPTX - Free Report ) invests most of its assets along with borrowings, if any, in the master limited partnership of companies, which are engaged in the transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPTX advisors also invest in derivatives and other instruments with similar economic characteristics in the same industry.

Stuart Cartner has been the lead manager of MLPTX since Mar 30, 2010. Most of the fund’s exposure was in companies like Energy Transfer (8.1%), MPLX (7.4%) and Western Midstream Partner (6.1%) as of May 31, 2024.

MLPTX’sthree-year and five-year annualized returns are 22.9% and 12.1%, respectively. MLPTX has an annual expense ratio of 0.87%.

Invesco Small Cap Value ( VSMIX Quick Quote VSMIX - Free Report ) fund invests most of its assets along with borrowings, if any, in common stocks of small-capitalization companies and derivatives instruments with similar economic characteristics. VSMIX advisors choose to invest in companies that, according to them, are undervalued.

Jonathan Mueller has been the lead manager of VSMIX since Jun 24, 2010. Most of the fund’s exposure was in companies like Vertiv Holdings (3.2%), Coherent (3%) and Lumentum (3.0%) as of Apr 30, 2024.

VSMIX’s three-year and five-year annualized returns are 17.6% and 20.3%, respectively. VSMIX has an annual expense ratio of 0.86%.

BNY Mellon Dynamic Value Fund ( DRGVX Quick Quote DRGVX - Free Report ) invests most of its assets along with borrowings, if any, in stocks of companies that have value, sound business fundamentals, and positive business momentum evaluated on extensive quantitative and fundamental research using a bottom-up approach by portfolio managers. DRGVX also invests a small portion of its net assets in foreign equity securities with similar economic features.

Keith Howell Jr. has been the lead manager of DRGVX since Sep 21, 2021. Most of the fund’s exposure was in companies like JPMorgan Chase (4.6%), Berkshire Hathaway (3.6%), and Danaher (3.3%) as of Feb 29, 2024.

DRGVX’s three-year and five-year annualized returns are 12.5% and 14.4%, respectively. DRGVX has an annual expense ratio of 0.68%.

Want key mutual fund info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>

See More Zacks Research for These Tickers

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

Fidelity Select Energy Portfolio (FSENX) - free report >>

FIDELITY SEL SEMICONDUCTORS (FSELX) - free report >>

Invesco SteelPath MLPSelect 40 Y (MLPTX) - free report >>

BNY Mellon Dynamic Value I (DRGVX) - free report >>

INVESCO SMALL CAP VALUE IDX Y (VSMIX) - free report >>

Published in

This file is used for Yahoo remarketing pixel add

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

We couldn’t find any results matching your search.

Please try using other words for your search or explore other sections of the website for relevant information.

We’re sorry, we are currently experiencing some issues, please try again later.

Our team is working diligently to resolve the issue. Thank you for your patience and understanding.

News & Insights

3 AQR Mutual Funds to Buy Now for Superior Returns

August 21, 2024 — 07:08 am EDT

Written by Zacks Equity Research for Zacks  ->

AQR Capital Management, established in 1998 by Cliff Asness and his team, is an investment company based in Greenwich, CT. AQR provides a diverse range of mutual funds leveraging its systematic, research-driven approach.  The company's approach combines investing principles with a disciplined data-driven methodology and meticulous portfolio design. AQR has branches across the United States, Asia, Australia, Europe and the Middle East. All these factors make AQR an attractive option for investment.

Investing in AQR mutual funds seems prudent as of now. Also, mutual funds, in general, diversify portfolios without several commission charges that are mainly associated with stock purchases and trim transaction costs (read more:  Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money ).

We have, thus, chosen three AQR mutual funds that investors should buy now for the long term. These funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), positive three-year and five-year annualized returns, minimum initial investments within $5000 and expense ratios considerably lower than the category average. So, these funds have provided a comparatively stronger performance and carry a lower fee.

AQR Long-Short Equity Fund  QLENX invests most of its assets in equity-related and derivative instruments, which track the performance of equity instruments, such as equity swaps equity index futures, exchange-traded funds, and similar pooled investment vehicles.

Clifford S. Asness has been the lead manager of QLENX since Dec 31, 2021. Most of the fund’s holdings were in companies like Short-Term Investment (86.3%) and Other (14.1%) as of Mar 31, 2024.

QLENX’s 3-year and 5-year annualized returns are 23.9% and 15.1%, respectively. Its net expense ratio is 1.55%. QLENX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds,  please click here.

AQR Managed Futures Strategy Fund  AQMNX invests in a wide range of financial instruments, including futures contracts, forwards, swaps and related instruments.

John M. Liew has been the lead manager of AQMNX since Jan 6, 2010. Most of the fund’s holdings were in companies like Short-Term Investment (89.2%) and Other (10.8%) as of Mar 31, 2024.

AQMNX’s 3-year and 5-year annualized returns are 12.8% and 6.2%, respectively. Its net expense ratio is 1.50%. AQRNX has a Zacks Mutual Fund Rank #1.

AQR Equity Market Neutral Fund QMNNX invests most of its assets in equity instruments and related derivative instruments.

Andrea Frazzini has been the lead manager of QMNNX since Oct 7, 2014. Most of the fund’s holdings were in companies like Short-Term Investment (1.4%) and Other (1%) as of Mar 31, 2024.

QMNNX’s 3-year and 5-year annualized returns are 22.2% and 9.5%, respectively. Its net expense ratio is 1.55%. QMNNX has a Zacks Mutual Fund Rank #1.

Want key mutual fund info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.  Get it free >>

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Get Your Free (QLENX): Fund Analysis Report

Get Your Free (QMNNX): Fund Analysis Report

Get Your Free (AQMNX): Fund Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Stocks mentioned

More related articles.

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.

To add symbols:

• Type a symbol or company name. When the symbol you want to add appears, add it to My Quotes by selecting it and pressing Enter/Return.
• Copy and paste multiple symbols separated by spaces.

These symbols will be available throughout the site during your session.

Your symbols have been updated

Edit watchlist.

• Type a symbol or company name. When the symbol you want to add appears, add it to Watchlist by selecting it and pressing Enter/Return.

Opt in to Smart Portfolio

Smart Portfolio is supported by our partner TipRanks. By connecting my portfolio to TipRanks Smart Portfolio I agree to their Terms of Use .