Investment School: How to select a mutual fund?

How to select a mutual fund?

There are more than 500 schemes in mutual fund to choose from. An investor is fed with too many choice to choose from,but, a wise investor should consider certain criteria before investing in a fund.Lets go through the criteria.

1. Performance

The performance of the fund should be checked against its own benchmark which is mentioned in the fund document. The fund's performance should also be compared against its peers in the same category. A tech fund should not be compared with a pharma fund or a diversified fund.

2.Risk-Return Ratio

The ability of the fund to generate optimal returns for the risk level that fund is taking up. A balanced fund should deliver a moderate return since its risk level is not that high as a equity fund. The equity fund should be able to deliver a higher return owing to its risk taken in investing in equities. There are good indicators for risk-return ratio of a fund.We can see that in the coming posts.

3.Portfolio

To analyse the porfolio of a fund, the should be in existence for a significant period of time.So go for a good track record fund.Check if the fund is a large cap or midcap or smallcap fund and choose a fund which aligns with your requirement of investment.

4.Fund Management

A fund's track record is nothing but the track record of the fund manager. So track his presence in the mutual fund.However fund houses don make a fund reliable totally on a single fund manager, it still makes an impact when a top fund manager leaves a fund.No need for panic redemption when a fund manager leaves,stay put and analyse the fund before and after fund manager's exit and take a decision.

5.Cost

Two funds A and B with a similar returns in the past but with varying costs makes a difference.A fund with a lower costs stands better than a higer cost fund.The cost of a fund is expressed in terms of expense ratio.Go for a fund with lower expense ratio.

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