In order to choose the right one, you need to take into consideration several key performance aspects to have a clear idea regarding which one to choose. A better understanding of these key pointers will help you in navigating the mutual fund market. Let us discuss some of these.
Identifying your investment goal
The starting point of making any mutual fund investment is the identification of your goal in terms if time, date and returns. With a clear goal in sight you will never be tempted to forget, exit or stop your investment. Your investment goal can be both long term or short term. Depending on this factor, you can choose the type of fund that best suits your needs- equity, debt or hybrid of both.
Risk Factor Involved
Remember, mutual funds have certain risks attached to them that need to be fully understood to make the right choice. You can analyze the risk factor associated with the investment so that you know whether it aligns with your own risk profile.
- Equity Mutual funds are volatile funds resulting in several ups and downs in a short term period. However, the returns availed in this fund is higher than any other fund, especially in a long time frame.
- Debt Mutual funds are stable investments with lower returns than equity. Best for conservative investors, these funds should be chosen only if you are looking for low risk investments for your funds.
Liquidity
Under this point, you should ascertain as to when you need the invested money. If its needed in near future, you should not choose equity funds. These funds should only be chosen if you are willing to put aside your funds for a long time period without worrying for the ups and downs of the market. This is because compounding works best if the funds are left undisturbed for a long time.
Investment Strategy
Often ignored by many investors, this is a crucial pointer that can decide the success of your chosen mutual fund. It refers to the approach adopted by the fund house for investing and holdings of the scheme. This approach needs to be in line with your own investment philosophy so that there is no conflict of interest.
Expense Ratio
This refers to the fee or commission charged by the fund house for managing your investment. Basically, it means the fees received by the fund manager for ensuring investment profits. It can have a deep impact on the total investment portfolio. According to popular belief, higher the Assets under management, lower is the expense ratio.
Taxes
Post Tax returns should be taken into consideration carefully before investing. Mutual funds are considered as an efficient investment vehicle where the returns are taxed depending upon holding period and tax rate.
Conclusion
Selection of the right mutual fund is important for ensuring the overall success of the your portfolio and help you in achieving your money goals and objectives. Discuss these factors with our investment experts so that you choose the right mutual fund.
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