Selecting a Mutual Fund can be a confusing & mind-boggling task. Let’s see, what you need to keep in mind while selecting the top mutual funds for yourself:
• Choose a strong fund house: Before narrowing down you search to your preferred fund, select the fund houses which hold a firm goodwill in the market. These fund houses should have a strong presence and a promising and proven track record. A strong fund house will ensure efficient handling & management of your hard-earned money, thus bringing you sustained returns for a longer period of time.
• Look for consistency: before investing it is advisable to look for consistency in the performance of a fund over longer tenures like 4-10 years, rather than short term returns. Then it will be easier for you to select schemes that beat their benchmark indices and compare easily with their competitors.
• Risks and returns: Investments in most securities accompany a degree of risk and if returns aren’t in proportion to the risks taken, it’s not worth going for such investments. A good mutual fund is one which provides higher returns than others for an equivalent risk taken. Balancing these factors would help you maximize your returns by taking calculated risks. In order to do so, it is important that you analyze their risk tolerance.
• Goal related to the investment: An investor usually wants to make sure that their savings enhance their ability to achieve their goals. The investment needs to be in sync with the tenure of the goal, this decides the type of mutual fund. If you’ve got a shorter tenure, picking debt funds is always a good option. For investors with medium-term lookout, balance funds with both debt and equity are a neat option. Long tenure investors can choose additional exposure to equity mutual funds.
• Diversification of the fund: Mutual funds are presupposed to offer diversification across several different categories, sectors, stocks, gold, etc. A wide-ranging portfolio usually has a lower risk exposure than a portfolio based towards one particular sector, stock, or asset category.
• Mutual fund fees, charges and net return: mutual fund companies charge a fee on the investments for the services provided. The fees are divided as exit load and expense ratio. These fees are a serious factor in deciding the net return on your investment. Mutual fund companies usually charge an exit load on investments that are redeemed before the predetermined timeframe. Before investing, investors need to understand the timeframe at which the exit load will be charged. This timeframe has to be less than the tenure of goal for which the investment is being done.
Author: Hemant Dharnidharka. www.thecaonline.com