Selection parameters in mutual funds


Get an idea about the parameters for picking the right ones

Considering the investment strategy is important for the success

Many of you desire to include mutual funds in your investment portfolio but not sure how to get started. But you know that mutual funds are subject to market risks, and find the right scheme shall be a tough decision for you. Of course, investing in mutual funds has risks, but it does not lead to losses always. In fact, you are likely to earn more than the losses that you anticipated if you choose the right fund to invest in. If you want to choose winning mutual funds to invest in, get an idea about the parameters for picking the right ones for you. Let us check the selection parameters of mutual funds.

Never believe in the concept of the best mutual fund

Choosing the right fund for investing is not a tough issue. In fact, it is pretty easy, and with due diligence on your part, you can easily choose the right one for making profits. First of all, there is not any best mutual fund to invest in. The reason is that a fund that performs well today might not perform well the same way in the future. It might not generate great returns tomorrow. Similarly, a worst-performing fund might perform well tomorrow and can generate great returns. The right mutual fund for your investment goals might not be appropriate for another investor. So, pick your mutual fund based on your investment objective.

Aspects to consider before choosing the right mutual funds

Since mutual funds are subject to market risks, choose the right funds that can provide good returns. If you choose the right mutual funds, they can be winners and strategically enhance your investment objectives and portfolio. When it comes to mutual funds, an array of fund management companies are there to choose from. So, setting some goals to narrow down this field is important. Some of the key parameters that you need to consider for choosing winning mutual funds are:

  • Pick the right funds that help you to meet your investment goals

A clearly defined goal is essential to pick the winning mutual fund to include in your investment portfolio. You must have clear objectives in terms of the time frame, target date, and return expectations. With a clear objective, you can choose the right fund based on that. Ask yourself a few questions to get clarity on your investment objectives, such as:

Whether you look for long-term appreciation or current income?

The money you need to fund for your retirement purposes or the college education of your child?

Finally, you need to think about how long you need to invest in fulfilling your financial needs or the best time horizon for that.

  • Risk tolerance

Ensure to analyze the risk involved before investing in a mutual fund. Since the investments in equity mutual funds are subject to volatility, your portfolio can have ups and downs in the short term. At the same time, it can provide you substantially higher returns than other fund types. Debt mutual funds are relatively stable, but you cannot expect high returns from them. But if you are a conservative investor, it is the best choice for you. Before choosing a mutual fund to invest in, analyze whether you can tolerate an investment portfolio that can have extreme ups and downs. You should also check if you are comfortable with a conservative strategy when it comes to investment.

  • Consider the expense ratio of the fund

Many investors do not know that the expense ratio of a fund can make or break them. It is the cost that you need to spend to own a mutual fund and manage your investments. This fee is collected from investors to ensure profits for them across their investments. Check the expense ratio of the fund you choose before investing in it and opt for one with a lower expense ratio. The percentage of the expense ratio might seem small but will have a deep impact if you calculate it across your total investment portfolio.

  • Investment strategy

Many investors forget to check the investment strategy of the fund they choose. Considering the investment strategy is important for the success of your investment portfolio.

  • Importance of choosing an experienced and disciplined fund manager

If your fund manager is experienced and efficient, he or she can turn a worst-performing fund into a winning one. The role of a fund manager is important for the success of your fund. He or she decides on the stocks and securities to invest your money. Your fund certainly performs well if your fund manager is good.

  • Exit Load

Since exit load is a fraction of the NAV you get, this cost can leave a hole in your investment. Choose a fund that offers a lower exit load for you.

  • Consider the tax efficiency

Investors should carefully check the tax efficiency of the fund that they choose. Mutual funds are quite efficient when it comes to tax consideration.  When you redeem your equity funds, the generated returns are taxed based on the applicable rate and the period of its holding. Usually, long-term capital gains from equity funds are taxed at 10% over and above the exemption limit of one lakh. But short-term capital gains are taxed @15%.

When it comes to mutual funds, you can find so many options, and select the right one can be a tough decision. But choosing the best one is important for achieving your investment objective and the overall success of your portfolio. So, keep all the above factors in mind and choose the right mutual fund based on that for a successful investment portfolio.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh