5 THINGS TO CONSIDER BEFORE INVESTING IN A MUTUAL FUND

5 THINGS TO CONSIDER BEFORE INVESTING IN A MUTUAL FUND

From the last few articles we had already seen the potential that a Mutual Fund carries in terms of making an investment, and through SIP we can take the best route in getting in to the same and making the best out of it. But here the question arises, that out of hundreds of funds available in the market which one should be consider for investment? So, today am going to highlight 5 things that needs to be considered before investing in a Mutual fund.

 

  1. Understanding our investment requirement

Before deciding to get in to mutual fund we should get our homework done on how much level of risk we can afford with our investment. And as it is said more the risk, better are the returns. Based on the same we need to decide for e.g. If am looking for a long-term duration and expect a good return then I can opt for a Large cap fund whereas in case of short term the returns will be expected in less time but with greater risk. So, for example if am expecting around 12% annually on my investment then I can simply decide the type of fund with duration value based on the suggestion from financial websites or from a good financial planner

 

  1. Check the Fund Value

Fund value is about representing the current chunk of the capital invested by the fund including every component. So, if a fund has good amount of capital then there will be more chances of getting the good returns provided if it’s being used in a proper way by the fund manager. Also, we need to consider the time duration in which the fund has developed this capital. As at times too large fund value also becomes the reason for less returns. We must make sure that in terms of its peers the fund has decent amount of capital in its basket

 

  1. Check the Fund Manager performance

This is one of the important factor to be consider, since it is like understanding about your driver’s experience before handing your car to him. A fund manager who had successfully handled good funds in the past will surely make a difference in your fund as well with his strategies and experience. This also helps in investing in NFO (New Fund Offer) and get the best out of it. Every fund houses like HDFC, ICICI, DSP Blackrock has got a successful good return funds which are managed by a group of fund managers. Keep a track on those to improve your accuracy in selecting the best fund

 

  1. Check the yearly returns and the performance of fund in every market condition, based on past data

This should be a part of your research. As per many advisors, the past performance of the fund cannot decide it’s future return value which is true up to some extent. But I feel if we compare the fund performance with the market condition then we get a fair idea that how well the fund performed during the peak time and how good it shielded its return during the correction phase. A yearly return almost contains both the market fluctuations and within that period we can forecast our expected returns on the same

 

  1. Check the top picks in their Portfolio of shares and their allocations

Every fund has an objective or we can say allocation of capital where it sets the proportion of equity and debt or any other component like derivatives or bullion. So, for e.g. if my risk bracket is more than I can opt for an equity fund (i.e. fund with more exposure to equities) or else I can simply concentrate on the debt fund (i.e. fund with more exposure towards debt instruments). Also, say for e.g. if the Infrastructure industry is not doing good than I can simply refrain from investing in fund focussed on Infrastructure as their major portion of the investment would have been made in Infra companies which will indirectly downgrade my fund performance. To take this further to the next level, I can also check the portfolio of the fund through any financial websites and understand how much percentage of the fund is invested in which company and how can it benefit the overall fund value. Probably we might require a financial advisor help in the same, but yes considering this factor takes us one more step closer in getting a right fund

 

 

I personally believe this should at least be the basic check list in selecting a good mutual fund. Though there are many more factors associated and for those it’s always advisable for a professional second opinion from a Financial advisor to get confident enough in making a good start with the Mutual Fund. Do write back to me at aziz4ever.786@gmail.com for any queries or feedback. I wish you a happy Investing life ahead… 

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