While Mutual Funds are the buzz word nowadays, investors are baffled with the sea of information available on the internet. They are aware of the benefits of mutual funds and accept their role in wealth creation. However, choosing the right mutual fund and deciding which factors to consider is a complicated task.
Once you decide to invest in mutual funds, allow us to help you with your investment. In this article, we talk about the factors you must consider while deciding which mutual fund to choose.
1. Time Horizon
One of the primary factors to consider is the time horizon or the period for which you would invest your funds. The time period can be short term or long term based on your financial goals.
If you have a longer time horizon you can invest in funds with a high risk.
If, however, you are investing for a short period of 1-2 years, opt for conservative funds.
2. Risk Factor
Knowing the risk associated with a mutual fund investment helps you to plan as per your risk-bearing appetite. If you are an aggressive investor with high risk-bearing appetite, equity funds are apt for you.
If you are a conservative investor with a low-risk appetite, debt mutual funds are the ideal choice with their low and stable returns.
3. Fund Performance
Fund performance plays a pivotal role when you are looking for the right mutual fund to invest. However, fund performance must not be limited to 6 months or 1-year performance. It must be considered for a longer period.
A long period allows the market to undergo several business cycles and give consistent returns on the investment.
If even after 3,5,7, or 10 years, the fund fails to perform, it would be appropriate to assume the fund would not perform in the future too. While checking the fund performance, make sure to check the credentials of the fund manager for his experience and record.
4. Expense Ratio
The expense ratio is the fee or the commission charged from the investors for the management of the funds. It basically refers to the fees of the fund manager charged from the investors, to ensure profits from the investment.
When you select a mutual fund, look for a fund with a low expense ratio. Since the expense ratio is derived from the Assets Under Management (AUM), a higher AUM leads to a lower expense ratio.
Another important factor to consider is your liquidity requirement. If you need the invested funds in a short period of time, opt for liquid funds. If, however, you do not need funds for a long period, invest in equity funds, and earn good returns from the compounding effect of long term investment.
6. Investment Strategy
Another crucial factor to consider is the investment strategy of a mutual fund. Investment strategy refers to the approach adopted by the fund house for the investments in each scheme. If your investment goals match with the investment strategy of the fund house, it is a good choice for investment.
If, however, your investment approach and the investment strategy of the fund house do not match it would lead to a conflict of interest and you would sell your investment at an unfavourable and lower price.
7. Exit Load
Another significant factor to consider is the exit load charged by mutual funds. Exit load is the fees charged from investors on withdrawing from a mutual fund scheme.
The exit load is levied only if the investor withdraws theinvestment after a specified period. It is, therefore, necessary to choose a mutual fund that has the least or zero exit load.
8. Fund Size
The size of the fund does not affect the investment objective of the fund. However, if a fund size gets very big, the fund can change its investment pattern and strategy to accommodate the heavy investment.
A look at these factors would help you in choosing the right mutual fund. If, however,
you feel unsure of making a wholesome comparison, feel free to contact us at Sarsa-
Mutual Fund Advisory for all your investment queries.
We are a reputed mutual fund advisory in Jaipur with years of experience and happy
customers with us. We would happy help you in choosing the right mutual fund for investment based on your financial goals.