2. Introduction
As a new investor, one of the first dilemmas you’d face is about identifying avenues where you could
place yourmoneyfor strong and steady returnsinthe future.
A contemporary investor is inundated with many wonderful investment options such as equity, bonds,
gold, IPO, OFS, and corporate FDs.
This makesyour task of choosing thebest investment option trickier.
Insuch a situation, one asset class that often comes to your rescue is ‘mutual funds’.
As an investment asset class, mutual funds not only allow you to stay well invested in the markets, but
would help youmaximize yourincome.
That said, the big question is how do you pick a perfect mutual fund scheme? There is no correct way
for answering this question, but following a standardized approach could be theway forward.
3.
4. Drawing out your investment criteria
The best way to begin planning your mutual fund investment is by drawing out your investment
criteria based on your need analysis and various short-term, medium-term, and long-term
investment objectives.
This will help you identify the monetary value of your goals, making it easier for you to know how
much corpus you would need at retirement and the amount you need to invest every month to
achieve thecorpus.
5. Maintain certain key check-points before investing your
hard-earned money in mutual funds
One of the most important things you need to do as an investor before investing
your hard-earnedmoney in mutual funds is to maintain key check-points.
These check-points would serve as a ready reference point for you to choose the
mutual fund schemeswisely.
6. Know the entry, exit, and overhead loads
The first thing that the investor should check ina mutual fund is theload structure.
Currently, mutual funds arenot allowed to chargeentry loads.
However, certain schemesstill enforce some other loads and overheads.
It is crucial for you as a mutual fund investor to stay alert about such expenses,
since they eat into your actual returns on the mutual fund investment.
7. Know the expense ratio of the mutual fund scheme
It is very important for you to know about the expense ratio of the specific mutual fund scheme in
which youwanttoinvest.
This would include the annual fees charged by the fund that include management fee,
administrativecosts,andoperatingexpenses.
As per a general thumb rule, any mutual fund scheme with an expense ratio below 1% is always
going tobeanattractiveinvestment proposition.
8. Turnover ratio
You must consider the turnover ratio before investing money in a mutual fund
scheme. Knowing the historical turnover of any mutual fund will help you
determine the fund’s expectedperformance, going forward.
High turnover generally results in increased costs for the fund and decreased
returns for shareholders due to shareholders paying spreads and commissions
when buying and selling stocks.
9. Tenure and experience of the Fund Manager
Fund Managerholdsthe keytotheperformancesuccessof amutualfundinvestment.
Therefore, it is important for you to know the tenure and experience of the Fund Manager who
wouldbemanaging yourscheme.
A Fund Manager is the ultimate decision-maker, which increases the significance of his/her fund-
relateddecisions andpointsofview.
Thus, knowing the fund manager of the scheme along with his/her past track record is crucial
beforeinvesting yourmoney.
An effectiveway tojudge a Fund Manager’sefficacy isby looking at theperformanceof otherfunds
thathe/sheis managing.
10. Performance ranking of the fund
Last, but not the least, it is important for you to know how the fund has performed over a longer
timehorizon.
Get into the specifics to understand the fund’s performance, especially during different market
cycles.
Thekeyisalwayslookforconsistenciesoveroutperformancesduringdifferentmarketphases.
However, you must remember that past performance is not a window to the future, but is still the
bestavailableindicatortoenableyoutomakethe investment decision.
11. If you simply follow this easy check-points, your mutual fund scheme will
most likely provide you with thedesiredresultsin thelong term.
In case you are still finding it difficult to choose a mutual fund scheme and
areexperiencingconfusion,simply take help of a professional expert.
12. Thank You
To know more about investing in different mutual fund
schemes, visit investmentz.com