Mutual fund is a great investment option that can fetch you huge returns and is highly safe. If you have made up your mind to invest in a mutual fund, you may face an obstacle. How do you choose the best mutual funds to invest in India? This obstacle is often faced by the first time investor. This article details you the tips that can guide you to choose the ideal mutual fund that can fit your bill as well as promise better returns.
Tip 1: Know the performance rank of the mutual fund
Every mutual fund is analyzed on a daily basis and quarterly basis for its performance based on which the investors pool in to invest in the next quarter.
In the list of top mutual funds, you should be able to see the top quartile comprising of highly performing schemes. You must go ahead with such schemes. Those schemes after 3rd quartile indicate the time to exit and you should always ignore them.
Tip 2: Know the objective of your investment
Many investors fail to get the desired returns due to lack of clarity about objectives from their end. The objective can be as simple as monthly income or as important as constructing a house. It can vary from one person to other. For many senior citizens, mutual funds tend to remain as an option of retirement planning.
Before you choose the scheme, decide your objective. Equity fund is ideal for long term objective while debt fund is the apt one for short term objective.
Tip 3: Fund manager
An ideal mutual fund scheme does not just stop with the benefits and features of the scheme but also includes the support system and technological infrastructure behind. Best mutual fund should necessarily have a capable fund manager who has had decades of experience and can advise you and track your investment every day. Companies like SBI, Tata and ICICI have dedicated fund advisors who can ease the investment tracking system with proper guidance to the customers. Also, do not forget to ask about the funds he has managed in the past to know more about his performance and reliability. Never take risks without knowing the complete information of the fund manager.
Such advisors act as benchmarks for investors to decide if the return can be reinvested or terminated. Best mutual funds always have support systems that can automate the process and make it hassle free.
Tip 4: Expense ratio
First time investors do not understand the significance of expense ratio. This is extremely important and influence the performance of a mutual fund to a larger extent.
It is to be noted that SEBI caps the mutual funds and the associated expense ratio. Still, you need to ensure that the best mutual fund will always have lower expense ratio. When the ratio is lower, the risks are lower and the returns are higher. You do not have to pay high to recover/ manage funds at that instance. Check for this parameter when you choose a mutual fund.
Tip 5: Asset size
Most of you would be aware of the option on asset allocation in mutual funds. Asset size is often misunderstood or left over but the investors fail to know its role. Asset sizes act differently in equity and debt schemes.
When you choose a mutual fund, it is essential to note if the scheme asset has a moderate AUM. This AUM stands for assets under management. The reason to allow considerable AUM is that it clarifies the list of investors and quantum accordingly. This transparency is not maintained when AUM is low.
Another reason to pay attention to AUM value is that it informs about the investors and their proposals for the next few years. For instance, big investors may plan to exit from the show suddenly. This can become a hassle as the mutual fund can face a huge impact. If AUM is large, it is easier for the mutual fund company to minimize the risks with alternate investors. This again has a connection to the ability of fund manager to mention about the investors and the potential performance of fund in years to come.
Tip 6: Ratios
The last tip in choosing the best mutual funds to invest in India is to study the ratios. There are different ratios such as alpha, risk and returns. Alpha is a performance indicator that measures the performance of a specific portfolio and the role played by fund manager towards it.
If the value of alpha is positive, it means that the fund manager is efficient and consistent over the years. Otherwise, it is a warning that you may have to choose an alternate fund and recalculate the risk and return ratios from the scratch.
It is not an easy task to choose the best mutual funds to invest in India unless you have financial and market knowledge. The aforementioned tips hold well even for experienced investors who might have faced slips due to varied reasons in the past. The tips are not just the ones mentioned above as every investor will have to conduct a fund research, market research and field analysis. This will give the realistic perspective of the fund and the company associated with it.
It is ideal to always go ahead with reputed firms who have shown consistent performance and have survived for a minimum of 3 decades in the market. It can denote the knowledge and reliability and you may be safe despite the market volatility. These tips are perhaps interrelated and it all starts with your effort. A study on the performance indicators about the fund can always be productive.
If you have chosen the best mutual fund now, make sure that you follow a disciplined structure to follow up the trend and keep yourself updated on the next steps. Do not wait for an update from the fund manager. Research and grab your best mutual fund now!