Mutual funds have a risk, like any other type of investment. However, if you choose the right mutual fund, the chances of losses are much less. Investing in the right mutual fund brings profit much more than your expectations. But the question is how to choose the right mutual fund? What are the factors that you should consider before picking a mutual fund? This article talks about all the important factors that help you in choosing the right mutual fund:
- The objective of the investment –Every mutual fund follows an objective which helps them in determining the various assets classes. You should ensure if your objective aligns with the mutual fund’s objective. Picking a fund which has a similar objective as yours, makes your investment to reach its goal faster.
You can pick from large-cap, mid-cap, multi-cap, Flexi cap and micro-cap funds. These market capitalizations help in structuring your portfolio in a better way. You should also assess the style of fund management style to find out how well it is going to handle your money.
- Performance of the fund – You should consider the performance as it will give you an idea about how well it has handled the money over the course of time. You should measure the performance over a long period so that you can determine the pattern and make a good judgment. You should also look for the kind of risks that the fund is exposed to. Keep reviewing the various portfolios and find out how they are handled. This will tell you everything about the fund’s performance.
- Fund manager – Fund manager plays a key role in generating returns. A good fund manager will keep moving the capital in the right direction. A fund manager should have good experience and expertise in his work. His tenure also determines how trustworthy he is. You should pay attention to your fund manager’s tenure and expertise so as to ensure that you are trusting the right person with your money.
- Expense ratio – The more the expense ratio, the higher it affects you. The expense ratio includes the brokerage fees and other charges that are charged from the investors by the mutual fund providers. However, some funds are charged higher but they make up by providing good returns and the higher latest NAV of mutual funds.
- Exit load – Exit load is the fraction of mutual fund NAV that you get which means less profit. So a fund having a lower exit load is better for you. However, it only comes into play when you want to sell your assets. It is always advisable to stay invested for the long term to get good benefits from the mutual fund.
Investing in a mutual fund is not something that you can take lightly. You need to be active if you wish to make money through mutual funds. Consider above-mentioned factors next time when you pick a mutual fund to invest in.
