How to choose a suitable mututal fund?
Before you decide on the best
mutual fund in India for you, it is extremely critical that you analyze the pros & cons of every option available for your financial planning. Here are 10 pointers that can help you in deciding the best mutual fund scheme for you.
- Self-assess: An investment should always be planned as per your requirements. An investor should consider their age and financial needs. Equity investments require longer time duration, so it makes for an ideal investment horizon for a 30 year old investor rather than a person in their 50s. Diversification between equity & debt needs to be done considering the age of the investor.
- Exit load: This is the charge that is charged at the time of transfer/switch between schemes or while redeeming. The exit load %age is subtracted from the NAV during redemption or transfer/switch. There are also some schemes called “No load schemes” which don’t charge any load. One needs to bear this charge in mind while investing.
- Risk involved: Investments in most securities accompany a degree of risk. A good mutual fund provides higher returns than others for an equal amount of risk taken. Achieving a balance between these factors would help you maximize your returns by taking previously calculated risks. For this, it is important that an investor analyzes their risk tolerance.
- Asset allocation: A wide-ranging portfolio usually has a lower risk exposure than a portfolio based towards one particular sector, stock, or asset category. It is wiser to allocate your assets over stocks, debt, gold,
index funds, etc.
- Consistency in performance: before investing it is advisable to look for consistency in the performance of a fund over longer tenures like 4-10 years, rather than short term returns. Then it will be easier for you to select schemes that beat their benchmark indices and compare easily with their competitors.
- Strong fund house: Before narrowing down you search to your preferred fund, select the fund houses which hold a firm goodwill in the market. These fund houses should have a strong presence and a promising and proven track record. A strong fund house will ensure efficient handling & management of your hard-earned money,
- The fine print: “Mutual fund investments are subject to market risks, read all scheme related documents carefully”. An investor needs to attentively read the Statement of Additional Information (SAI) / Key Information Memorandum (KIM) / Scheme Information Document (SID).
- Objective for an investment: An investor usually wants to make sure that their savings enhance their ability to achieve their goals. The investment needs to be in sync with the tenure of the goal, this decides the
types of mutual fund.
- One scheme may not be enough: Some investors need a FMP for market linked returns while some may prefer to invest in ELSS for Tax benefit under section 80C. Considering your needs you might need to invest in more than one scheme.
- Size of corpus: A big corpus is considered better as bigger funds imply lower costs. This is because expenses of the fund are spread over large assets. On the other hand, this also has some shortfalls, as a large corpus becomes difficult to manage.
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Certain factual and statistical information (historical as well as projected) pertaining to Industry and markets have been obtained from independent third-party sources, which are deemed to be reliable. It may be noted that since RNLAM has not independently verified the accuracy or authenticity of such information or data, or for that matter the reasonableness of the assumptions upon which such data and information has been processed or arrived at; RNLAM does not in any manner assures the accuracy or authenticity of such data and information. Some of the statements & assertions contained in these materials may reflect RNLAM’s views or opinions, which in turn may have been formed on the basis of such data or information.
Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.