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The 5 Factors You Need To Consider When Selecting A Mutual Fund
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Think about investing in mutual funds and you will for sure be bowled over by the options that are available. With more than 40 AMCs and more than hundreds of schemes and options, the choice is indeed a tough one. But did you ever wonder as to what are the factors that you need to consider before you invest in a mutual fund?
Mentioned below are few of the parameters that have to be considered before making your very first mutual fund investment.
Does the fund you are choosing fit your financial / investment objective?
This is the most important factor you need to consider before investing in a mutual fund as it needs to fit in perfectly with your investment objective. For example, if you are looking for a stable income, you can choose to invest in debt funds or choose equity related schemes if you are looking for a higher return. Investors can also choose a reputed direct mutual fund platform to make their investments online.
Did the fund you choose perform well even in risk-adjusted terms?
Though we often hear the saying that one should not look at the past, it does not really apply when you have to invest in funds. Knowing the past performance of the mutual fund is vital and you can choose a fund which has 15% returns and has low vitality when compared to the fund that provides 17-18% returns with high volatility. It is important to choose funds that would easily outperform the index in the future.
Does the fund management team have the needed experience?
This too is one of the factors you need to consider during your mutual fund investment. It is important to note that most of the funds perform well when they have a stable fund manager. You need to look out for such funds as a good fund manager has great and consistent investment strategies and also has a good sync with the other dealers, researchers and so on.
Do you know about the entry and exit loads?
Well, these terms might sound a little alien to new investors. There are a few costs that are directly billed to the investors and some others are billed to the NAV (in expense ratio form). The entry loads which existed in the past are no longer applicable but there are exit loads that are charged when an investor exits from the mutual fund before the set period.
Other than these there are also other costs like the transaction costs, administrative and operational costs and marketing costs, which are debited from the fund’s NAV. The fund managers need to explain these fees and costs in detail to the investors before the investment is made in any fund.
Is the mutual fund scheme ahead of the investment curve?
This is one of those judgments you need to make before you finally invest in a fund. You can take the help of your fund manager who can catch a good trend and help create good returns in your portfolio.
Investing in a mutual fund can be tricky but is not a hard task to achieve. Choose the best mutual fund schemes wisely and plan your future with great returns.
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