How to select the best Mutual Fund?

Selecting a mutual fund investment by getting affectionate with its returns is not the only measure you should follow. Being a smart investor, you must need to go through various stages or processes to select the appropriate mutual fund scheme for yourself.

In your life, you must have faced a situation, where you must choose the best and appropriate option for yourself, from the pool of good options. Right from selecting what to wear to selecting your life partner and etc., You must have gone through a series of research and discoveries before finalizing the best option for yourself. It must be difficult for you but the same process is to be followed while selecting the best Mutual Fund Investment for yourself.

Investor must follow various steps before picking up the best mutual fund scheme. Now through Incomecontrol, get to know about the various steps followed to select the best Mutual Fund Scheme.

1. Recognize Your Goal for Investing and Identify Your Risk Tolerance: Before picking up any mutual fund scheme, the first thing you must do is to categorize your goal. People do invest for mainly two objectives, first for long-term wealth gains like investing for after retirement plans or future house plans. Secondly, people invest in current income gain like paying college fees or for medical expenses. You should also be conscious of your risk tolerance capability. When you invest, be ready to face the hectic drama of ups and downs of your portfolio value. Keep one thing stuck to your mind, every problem has a solution. Thus, a dramatic play of portfolio value also can generate good returns, depending on the period you invest for. Short-term investment or liquidity in your portfolio can vanish an adequate amount of gain from your returns generated from the funds. To get quantity returns, you should opt long term investment scheme, at least a minimum for five years.

2. Style and Fund Type: According to your investing goal you select the type of mutual fund scheme to invest. The type of fund you choose decides the scale for capital appreciation. Suppose, the objective of your goal requires a long-term investment and you can withstand the risk occurring in investment, you should opt long term capital appreciation fund. These types of funds are subject to high risk and volatile, tend to generate good returns with an increase in time. The minimum duration of investment for these types of funds should be 5 to 10 years. If the objective of your goal requires current income needs, then you should opt for an income fund investment scheme for your portfolio. The income funds are involatile and generate regular income in the form of returns.

3. TER or Total Expense Ratio: You must be thinking that I am only talking about the benefits of investors, but what about the Asset Management companies that assist the investors in their investment plan. Don’t get confused, the Mutual Fund companies generate their money by charging fees to the investor, known as TER or Total Expense Ratio. The TER or total expense ratio is a total charge cost associated with the management and operating of a mutual fund, but the question is, what is the trend of calculating TER? How these costs affect the investor's pocket? Simply, TER is a ratio of the total fund cost by the total fund’s assets. Beneficial point is, larger the number of assets in a mutual fund, lower will be the TER cost. So, when you will, to select a mutual fund, have a look at the assets in the fund.

4. Passive & Active Management: Before elaborating about this step, first you need to know about Passive and Active Management. The portfolios that are managed by professionals are active portfolios and the phenomena are popularly known as Active Management. It is just the opposite in the case of Passive Management. In this section, the portfolio is designed to trail the elements of a financial market index. This type of management charges less for its execution but, generates low turnover on portfolios, and gives one more option to become a rejected notion.

5. Evaluating Managers and Portfolios Turnover Results: To understand this stage, first, let's do some online shopping! When you buy a dress online, what you do? I know, before adding it to the cart you first check its star ratings, and then you read the reviews given by the buyers of the same dress. If the rating is 4 or more out of five and the reviews are positive, then only you decide to buy the dress. Same thing you must do in case of mutual Fund Scheme also. Before investing, you must give a reality check to the manager, assisting in your investment plans and enquire about his honesty and consistency towards the market returns. Similarly, you must discover the volatility and turnover generated records of the Mutual Fund scheme you are going to invest in.

6. Size of The Fund: This step is not a vital one in picking up the best mutual fund scheme, but it is said that a single drop of poison can turn your whole body, toxic. So why to take the risk. The size of the fund doesn't impart any negative mark on the return, but sometimes it turns upside down and imparts negative mark on returns, resulting in low returns. You are aware of the proverb ‘Too many cooks spoil the broth' means the excess of anything destroys it. Similar is in the case of the size of the fund. Too big fund in size creates havoc to the manager and become out of reach of his management.

The above mentioned and explained points are the only strategies you can go through to pick up the best mutual fund. If you still have any query and is afraid of choosing the inappropriate scheme, why to bother and increase your blood pressure, come to Shri Ashutosh Securities Pvt Ltd. We are here to present a solution to your every query related to Mutual Fund Investment.

Beneficiary keys to pick up a best mutual fund:

1. Never pick up any mutual fund scheme by looking at its past performance. It not necessary, a scheme that generated good returns in the past would generate best returns in the future.

2. Choose long-term goals, calm down and see how the situation becomes favorable for your returns.

(Disclaimer: The information included at this site is for educational purposes only. Investments are subject to market risk. Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns.)