Mutual funds are undeniably one of the best investment options for any investor. Varying from your risk profile and the holding period that you choose, you can select from either of the options – debt, equity or balanced funds. Choosing either of the options relies on what suits your time-frame and furthermore your risk appetite.
The biggest mistake that the new investors frequently make is by selecting the mutual funds basis its latest performance. A couple of investors consider the rating while finalizing a mutual fund. In hindsight, it sounds comforting to pick one of these funds and invest in it to reap benefits, however; the toughest part is to select the right product.
But in order to find the right fund amidst a hundred attractive offers can be slightly overwhelming, and if you make the wrong choice here, there’s a probability of losing money in a big way. So how do you go about picking the right mutual fund? To start with, we bring you a few parameters basis which you can decide upon buying your mutual fund.
The objective of the fund
The most astute approach to make a decision should start by checking upon the ability of the fund to stick around with the objective mandate. Abstain from picking a fund that frequently shifts apart from its original theme and allocations.
Analysing performance of the fund
Before parking your investment anywhere, it’s of utmost importance to analyse the history of the fund, its past performance. There are factors beyond the past performance that we need to have a look at, our goals, other investment plans, the liquidity of the fund, and tax planning. There’s a probability that the past performance might reflect effectively strong, in this case always look for its long-term performance by comparing it to the larger market benchmarks.
History of Fund/Portfolio Manager
One of the most significant factors to consider is that of the fund manager’s track record. It’s important to understand whom you’re entrusting with your investments, period for which he’s been handling that fund, the period for which the fund has been in operation and finally, the credibility of your fund manager.
You might have noticed that the above parameters somewhere overlap each other. Such sub-categorisation will give a better understanding of funds’ performance, its purpose in your portfolio and the final outcome to be expected. Remember, your investments are your strongest tools that help you in reaching out to your dreams, but they are not an end in themselves. They simply direct you in understanding your prevalent objectives in life.