Mutual funds are a popular investment option in India. They are managed by asset management companies (AMCs) and pool funds from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds and other assets. Before buying a mutual fund, you should examine several important factors to ensure that you make an informed investment decision.
It is important to note that investing in mutual funds involves market risks, and past performance is not indicative of future results. It is advised to consult a financial advisor or do thorough research before taking any investment decision.
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Some important things to consider before buying a mutual fund are;
investment objective: Understand the investment objective of mutual funds and ensure that it is in line with your financial goals. Different funds serve different objectives such as growth, income, capital preservation, or tax-saving.
fund performance: Evaluate the historical performance of the fund over different time periods, such as 1 year, 3 years, 5 years and since inception. Compare the fund’s performance with its benchmark index and similar funds in the category. Look for consistency in returns rather than relying only on short-term performance. Remember, past performance is not indicative of future growth.
track record of the fund manager: Assess the experience, expertise and track record of the fund manager. Look for managers with a proven track record of delivering consistent returns and managing risk effectively. Review their investment strategy.
risk profile: Evaluate the risk associated with mutual funds. Consider factors such as volatility, asset allocation, concentration of holdings, and historical drawdown. Assess your risk tolerance and ensure that it aligns with the risk profile of the fund.
expense ratio: consider Expense ratio charged by the fund, The expense ratio represents the annual cost of managing the fund and is subtracted from the fund’s assets. Lower expense ratios are generally better because they can have a positive impact on your returns.
asset allocation: Understand the asset allocation strategy of the fund. Segregated funds invest in a mix of equity, debt, cash or other asset classes. Make sure that the asset allocation of the fund aligns with your risk profile and investment objectives.
fund size: Check the size of the mutual fund. While size should not be the only criterion, larger funds often have advantages such as better access to research, experienced teams and potentially lower expense ratios.
Fund House Reputation: Evaluate the reputation and credibility of the mutual fund house. Look for fund houses with a strong track record, good corporate governance practices and a strong risk management framework.
exit load: Understand the exit load, if any, levied by the mutual fund. Exit load is a charge that is levied if you redeem your investments before a certain period. Consider the exit load while assessing the liquidity and flexibility of the fund.
planning document: Read the scheme documents of the mutual fund. These documents provide essential information about the fund’s objectives, investment strategy, risk factors, costs and other details.
investor services: Consider the quality of investor services provided by the fund house. Evaluate factors such as ease of account opening, customer support, online access to portfolio information and availability of additional resources or tools.
It is advised to consult a qualified financial advisor or professional who can guide you through the process and help you make an informed decision based on your specific financial goals and risk appetite.
Disclaimer: The views and investment tips given by the experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decision.