As an investor you are blessed with a choice to invest in more than 5500 mutual funds. In fact in the equity category there are more than 300 funds only. Along with this a person can be subject to be exposed to debt, gold or commodities. Varied investment patterns are there which a person follows providing varying levels of returns. For this precise reason how to choose mutual funds is not an easy job. Let us go through some of the basic pointers you need to follow in terms of choosing a mutual fund.
Investment objective
Any individual invests with an objective in mind. The time frame may vary from weeks, months to even years. To save for the down payment of your car is a short term goal, or to work out the finances for the education or wedding of your children is a long term goal. For long term objectives we rely on equity funds and for short term goals debt funds are the way to go. The risk bearing capacity of an investor assumes importance. Discuss with your financial planner on how to approach your investment objectives
Be aware of the fund company
The moment you invest in a mutual fund you provide the fund house to manage money on your behalf. It is expected that the fund house is going to take care of your investments. The decisions taken by the fund house is expected to provide us with viable returns and take us future to our investment goals. If the fund house fails in his objectives, our financial objectives fall by the wayside.
To be aware about the fund house is really important. The key point of consideration is what the various schemes on offer are, how they are going to approach your investment needs or are the products on offer in line with the investment parameters. Most of the information is provided in the investment booklet
The performance of the funds
The main aim is returns. As an investor you need to compare it with the returns on offer provided over the course of the years and compare it with the benchmark. When it is the equity funds check out the long term performance and for the debt funds, do check out the returns from the short term to the medium term.
As an investor you need to avoid funds that are volatile in nature. Consider the consistency and long term track record of the funds.
To conclude as far as investment in mutual funds evolves you need to adopt a disciplined approach. The key is to start at a young age so that you can keep the investments going. In this regard you should resist an urge to follow the latest trends of the market. To add units you need to set up a schedule and for emergencies keep some cash in hand. To reduce the risk of volatility you need to invest at periodic intervals of time.
