5 Tips to pick a right mutual fund
From an investment point of view, there is no other option as good as investments made in mutual funds. Professionally managed, the fund managers at mutual funds keep a track of your hard earned money, so that you can sleep in peace even in the most difficult financial times.
Mutual Fund houses invest the corpus that they receive from investors in different types of financial instruments depending upon the objective of the fund. While choosing a fund however, you need to be mindful of the risk that you are taking with a fund. There are thousands of mutual funds available in the market but the big question lies how to choose the right mutual funds?
Below we share with you how to choose the right mutual fund:
Fund Objective: The main criteria of choosing a fund lies in its objective of investment. The investor must look for the fund’s investment objective and match with his own. For example, many mutual funds seek long-term capital appreciation while others seek growth. Some fund houses invests entirely in equities and some may be in fixed income and money market instruments. Furthermore, while investing in equity, the funds may choose mid-cap, large-cap, small-cap or mixed cap, where they allocate each and every categories of funds into the fund’s portfolios. So from an investor’s point of view, the investor should decide and try to match his investment objective with that of the fund
Fund Manager: The second most important factor is the name of the fund manager. It is often seen that a fund manager is performing well making money for its clients but when a new fund manager takes up his/her position, the new manager fails to keep up the good work of the prior manager and etc.
Past Performance: Although past performance doesn’t guarantee you that you will enjoy the same amount of profit for the coming year, but still it can give you a clear picture about the fund performance and how it had performed in the yester years and how it was managed during the periods. A fund giving a descent returns over a period of 3-5 years is generally stable and one can invest accordingly in consultation with his/her financial advisor.
Tax Benefit: Mutual Funds give the investors a unique opportunity to save their taxes by investing into certain types of tax free mutual funds. Moreover, dividend earned by certain mutual funds is also tax-free giving the investors a wider access to earn money without paying taxes.
Expense Ratio: Expense ratio is the annual charges charged by the fund houses. Generally, the expenses ratio includes the administrative costs, management fee and other operating expenses. Higher the management fee, the lower will be your returns at the end of the day. So it is always advisable to choose a mutual fund which has got a low expense ratio as compared with its peers.
How to check?
Each fund houses publish their own fact sheet on a monthly basis. An investor can go through the fact sheet to know more about the fund house. Similarly, all the necessary information along with the fund’s objective, name of the fund manager, past performance of the fund and expense ratio compared with the category is easily available in the fact sheet. Separately, investors not knowing how to find the fund’s factsheet may visit our website and get all the relevant details in a simple and easy way.
There may be other parameters also to choose mutual funds but these were the basic and the simple steps through which one can choose amongst the others.