Alroy Commentary - What are the differences between Direct Funds and Mirror Funds?
If you have invested in investment-linked products, you may find some products invest in Direct Funds, and some invest in Mirror Funds. Direct Funds and Mirror Funds may share similar or same fund names. You may wonder, what are the differences between Direct Funds and Mirror Funds?
The concept of Direct Funds is straightforward and easy to understand. Investing in Direct Fund is equal to investing in Mutual Funds directly. You give your money to fund managers, which are professions in investment, and he or she will invest your money in individual securities. His or her primary objective can be either capital appreciation or capital protection.
Mirror Funds invest in Mutual Funds exclusively, and reflect their performances. So you may want to ask, if Mirror Funds simply invest in other funds, what are the advantages and disadvantages of investing in Mirror Funds? There are two main differences between investing in Direct Funds and Mirror Funds.
· Switching Timing
o You believe one market is oversold and this is a good opportunity for you to invest, you would like to sell one of your holding and invest in that market. If you invest in Direct Funds, it is impossible for you to complete the transaction in the same day. Normally, switching between different fund houses could take around a week to process your order.
o Under the mechanism of Mirror Funds, insurance company maintains a pool of underlying funds. The process of switching is undertaken by insurance companies instead of fund house, the timing of switching can be as short as same day.
· Performance
o Even Mirror Funds claim they invest in Mutual Funds exclusively, the funds would hold a small amount of cash, in additional to the underlying fund, for the redemption need of investors. Insurance companies may charge administrative charge every year, you can expect Mirror Fund would underperform the Direct Funds in some points after the charges and cash retention.
You can find both pros and cons for Direct Funds and Mirror Funds investment. Investors should consider these factors to decide the suitable investment channel.
Copyright ©2015. Alroy Financial Services Limited. All rights reserved. Member of Hong Kong Professional Insurance Brokers Association. Membership No. M-437. |
Follow Us: Show: Full Site | Mobile site |
|
The information of this page is for reference only; it does not constitute any selling purpose, solicitation of buying and recommendation for you to participate and complete any transaction. |