Mutual Fund has come out to be the most preferred investment options among individuals who are looking to grow their money over the long term. Read this special article to unlock the true secrets of mutual funds investing.
But Before Directly get into it if you are a beginner then you must know The Reasons To Invest in Mutual Funds.
We’ve come across many people who have lost their money because of their wrong selection of mutual fund schemes. Therefore before investing, a thorough analysis of any scheme is a must.
Things To Know Before Select A Mutual Fund
- Returns and expense ratio, both are to be considered at the time of fund analysis. Whereas priority is given to returning. Don’t merely look for funds that have a low expense ratio, the main focus is to be given on earnings whereas if the returns are less as compared to expense ratio then avoid the scheme.
- NAV does not matter the performance of your mutual fund, nor does it imply the future growth of your mutual fund. So it isn’t mandatory to go for funds with lower NAV. Just make sure other parameters are good.
- Prefer investing in schemes with a lower P/E ratio. That usually indicates that the scheme is providing good returns and has the potential of doing it further too.
- Prefer not to buy a fund when the AUM (Asset under management) is high. Especially small-cap funds with higher AUM finds it difficult to invest in the companies they actually want.
- Checking the Fund Manager of the fund is the top priority. A smart fund manager has a complete sense of the market movements and knows when to be fearful in a heady market, and when to be greedy when no one else is buying stocks.
- According to us, you’re investing in mutual funds is on the right track when your funds are Diversified. Diversifying your investment lowers the risk and increases the return if done properly.
- Search for schemes with Low Turnover Rate. The turnover rate represents the percentage of the mutual fund’s holdings that changed over the past year. A mutual fund with a high turnover rate decreases returns for its investors.
- Invest only your surplus in schemes with high risk like in micro-cap funds. They can provide you extraordinary returns but sometimes can also cause you loss. So invest only that amount here which you can afford to lose.
- We advise you not to go for trendy funds; one that is being bought by the majority, neither should you go for funds that have just given good returns for a small past time period. Apart from that, one should look for Performance Consistency i.e. we should analyze the performance of funds over numerous periods like 2 years, 3 years, 5 years or more.
- Your investment value can go down for a short period but we believe that it is not a reason to panic. You should stick to your long term goal, fundamentals, and most importantly- RISK MANAGEMENT PLAN. If you’ll panic then you will end up buying on high and selling on low.
- Regular Monitoring of investment and also examining it is necessary. It helps the investor to figure out which type of investment is working out and which isn’t. It also helps in studying market patterns.
- Check the record of AMC (Asset Management Company); e.g. 10 schemes are listed and only 1 is performing then ignores it. AMC’s should be investing a good amount in their schemes. Also, check whether their fund manager is stable or not.
- There are funds for every need. For tax saving ELSS mutual funds are best. Liquid mutual funds are considered as best alternatives to banks as they provide better returns than banks and lower risk as compared to other mutual funds.
All mutual fund companies are monitored and regulated by SEBI, so there are no chances of malfunctioning. Therefore going for big names is not mandatory. Good fundamentals and leadership are necessary.