Saving and investment for future financial security is a high priority for each individual. For several people, progressively busy lifestyle and lack of information sway be a hindrance in selecting the right investment product.
Mutual Funds provide skilled investment management for such people at a reasonable value. However, it's vital that
we analyze the subsequent factors before selecting a
mutual fund investment. Here are few tips for selecting your mutual fund:
- Fund House Pedigree: Before zeroing in on a scheme of your choice, you need to choose the fund houses on which you've got enough faith to invest your money. Try and identify fund houses that have a powerful presence within the financial world and provide funds that have a fairly long and consistent track record.
- Goal related to the investment: We make investments to make sure that our savings enhance our ability to achieve our goals. The investment should be in sync with the tenure of the goal, thus deciding the
type of mutual fund. If you've got a brief tenure, picking debt funds may be a good option. For investors with medium tenure, balance funds which have exposure to both debt and equity are a decent option. Long run investors can choose additional exposure to equity
- Diversification: By its nature, mutual funds are presupposed to offer diversification across completely different categories, stocks, sectors and even real estate. A wide-ranging portfolio has lower risk than a portfolio biased towards a specific stock, asset category or a sector.
- Consistency: A good mutual fund scheme is one that consistently manages to outperform its benchmark over 3-5 years. Look for consistency in performance over long tenures like 3, 5 and 10 years, rather than short-term returns.
- Risk-Return trade-off: Investments in most securities accompany a degree of risk and if returns aren't in proportion to the risks taken, it's not worth going for such investments. A good mutual fund is one which provides higher returns than others for an equivalent risk taken. Balancing these factors would help you maximize your returns by taking calculated risks. In order to do so, it is important that you analyze their risk tolerance.
One of the indicators of risk-adjusted return is Sharpe ratio, that is excess return given by the fund over return given by a risk-free instrument divided by a statistical term referred to as standard deviation that tells how volatile the returns of the fund have been over a period. The higher the Sharpe ratio, the better the risk-adjusted return is.
- Mutual fund fees, charges and net return: In place of services provided, mutual fund companies charge a fee on the investments. The fees are classified as exit load and expense ratio. These fees have a serious say in deciding the net return on the investment. Mutual funds charge an exit load on investments that are redeemed before a stipulated timeframe. Before investing in mutual funds, investors ought to understand the timeframe until which exit load is charged. This time frame needs to be less than the timeframe of goal for which the investment is being made.
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 RNAM 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; RNAM 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 RNAM’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.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.