Here are 5 ways that will help you zero on the right mutual fund
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Here, we will focus on a few parameters that will help you in choosing the right mutual fund for investment depending on an individual’s requirements.
Ø Identify the objective: Like stated before, there is a right kind of mutual fund for everyone and every need. So, the first thing one needs to do is identify their objective for
Ø Asses your Risk Appetite: Mutual funds are managed by professionals and generally these professionals base their decisions on extensive research. However one cannot forget the MFs are market linked products which means they are susceptible to market risk and they do not have guaranteed but have indicative returns. So before choosing a scheme it is important to understand if it matches your objectives and whether it matches your risk appetite also or not. Equity funds are high risk and high returns, while debt funds lie on the other end of the spectrum. Balanced funds as the name suggests lie somewhere in between. Generally those in advanced years do not prefer equity oriented schemes while the younger investors can afford to invest in equity funds and take some risk.
Ø Focus on History: As stated earlier, MFs are market related instruments so there can be no guaranteed returns. Even for debt funds the returns are indicative; so how does an investor decide if the fund will deliver what it promises in terms of returns? This can be assessed to an extent by looking at the past performance which can be indicative of the expected future returns but again there is no surety that in the future also a similar pattern will be followed. Looking at the past returns can help in assessing a trend that a mutual fund follows in terms of returns.
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Ø Pedigree is Important: Another factor that one should focus on while selecting a mutual fund is the fund house that is promoting it and who the fund manager is. Choosing a well known and experienced fund house will ensure that they will not indulge in unethical practices or will go bust while leaving you in the lurch. A fund manager decides which instruments or securities to invest in so an experienced and knowledgeable fund manager will ensure that you get good returns on your investments. Being preemptive and not reactive is what distinguishes a good fund manager from an average one.
The above factors can hopefully help you in choosing the right mutual fund for yourself which not only helps you in meeting your financial goal but is also a safe and profitable investment.
(Rajiv Raj is the Director and Co-Founder of www.creditvidya.com)
(Image: ThinkStock)
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