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!
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