3 Dirt-Cheap Top Ranked Mutual Funds - Best of Funds

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The choice of which mutual fund to invest in is determined by several parameters. These include the assets under management, the manner in which these assets are allocated and the profile of the fund manager. The fund manager's profile reveals much about how the fund could be managed, since past track record reflects the probable management style. Moreover, the price at which one buys mutual fund is crucial too.

Mutual Funds as Alternative Investment

Apart from investing in stock markets, mutual funds are great options for alternative investment purposes. One of the benefits of mutual funds is that they allows a small investor to invest in a basket of securities at one go. They are also less risky than any individual asset class as underperformance of a security gets mitigated by outperformance of others in the portfolio.


Benchmark Performances in 2014

Except for January, key indices have enjoyed a bull run so far. After the record run in 2013; wherein the benchmarks kept hitting record highs on several instances, markets started this year on a very dismal note. Emerging market concerns, China's dismal economic data and finally the Federal Reserve's $10 billion cut to the economic stimulus dealt severe blows to the markets. In January, the blue-chip index plunged 5.3%, S&P 500 was down 3.6% and Nasdaq declined 1.7%. This was the blue-chip index' worst start since 2009.

However, things turned remarkably well soon after and benchmarks ended higher in February. The Dow Jones jumped 4% in February while S&P 500 and Nasdaq scored gains of 4.3% and 5%, respectively. It was Nasdaq's biggest monthly gain since September 2013. Since end of January, the Dow, S&P 500 and Nasdaq have gained 5.9%, 6.6% and 5.7%, respectively.

However, volatility cannot be ruled out in near future given the various macroeconomic factors. On the domestic front, the Federal Reserve has decided to stick to its stimulus cut. Starting April, the bond buyback plan will be $55 billion. Separately, the standoff between Russia and western nations over the annexation of Crimea is a lingering issue of late. There have been several sanctions imposed on Russian officials, but Russia's President Vladimir Putin seems undeterred by any warnings. (read: Russia Mutual Funds to Watch on Ukraine Crisis ).

The Impact on Mutual Funds

The bullish market sentiment has already made NAVs of most of the equity funds high, but the expectation of further move higher is there given the positive market forecasts. So investing in certain funds that are not equity focused and still look cheap will be a prudent move at this point.
As said earlier, pricing is definitely important for picking funds. Mutual fund unit price is a reflection of the value of the fund holdings, adjusted for fees and expenses. Further, one of the most important parameters used while selecting a fund is the expense ratio. This parameter is calculated by dividing operating expenses by the assets under management. These expenses include operating and administrative costs and 12 b-1 fees. The largest portion of these expenses is attributable to the fees paid to the fund managers or investment advisors.

3 Cheap Fund Picks

Let's take a look here at some cheap mutual funds that have no load (a charge levied on initial purchases of shares used to pay a commission to the selling broker) low expense ratio, high returns and sport a Zacks Mutual Fund Rank #1(Strong Buy) :

T. Rowe Price Spectrum Income (RPSIX) invests in a range of T. Rowe Price mutual funds that represent particular market segments. It invests in funds that have high quality bond funds and also in income-focused stock fund among others. The fund may chose to offload positions for restricting losses, reinvest assets or secure gains.

The fund has an annual expense ratio of 0% as compared to category average of 1.10%. The fund has a five-year annualized return of 10.09% and has returned 1.85% year to date.

SEI Market Growth Strategy Allocation A (SGOAX) seeks capital growth as well as income. It invests in SEI funds that are part of the non-Underlying Muni Bond Fund component of the GoalLink Strategy. Each of these funds have their own investment target. The SEI funds invest in securities and other asset classes.

The fund has an annual expense ratio of 0.11% as compared to category average of 0.89%. The fund has a five-year annualized return of 19.49% and has returned 0.54% year to date.

T. Rowe Price Spectrum Growth (PRSGX) seeks capital growth over the long term. The fund invests in a diverse range of mutual funds from T. Rowe Price. Each of these funds represents a specific market segment. The fund invests in various equity funds to gain broad exposure; thereby limiting impacts from any particular market that may be underperforming.

The fund has an annual expense ratio of 0.0% as compared to category average of 1.22%. The fund has a five-year annualized return of 20.79% and has returned 0.13% year to date.


About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank.

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




This article appears in: Investing , Mutual Funds

Referenced Stocks: RPSIX , SGOAX , PRSGX

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