Where should you invest money is one of the most crucial financial decision to be made. There are different investment options available in the market which makes it difficult to choose which one is suitable for your financial requirements. Some of the investment options include stocks, bonds, shares, and other money market instruments. In such situations, investing in mutual funds is the best option for your investment requirements. This is because of two primary reasons given below:
There is no perfect way to select mutual fund, however analyzing your needs and investment objective will help you to move towards your decision of mutual fund investment. There is a checklist which can be used to find best suited mutual fund for your investment requirements
Entry, Exit and Overhead LoadsThis means checking the load structures on mutual funds. As per the basic rule, mutual funds are not allowed to charge entry loads. But there are some mutual fund schemes which still enforce other loads and overheads. It is advisable to stay alert from such additional expenses as they tend to eat away from the actual returns of the fund investment.
Check the expense ratio of the mutual fund schemes. This includes the annual fees charged by all the fund which further includes management fee, administrative costs and other operating expenses. Any mutual fund scheme whose expense ratio is below 1% is always an attractive proposition. Hence, before investing in mutual funds it is crucial to check the expense ratio of the same.
Investors should check the turnover ratio before investing in any mutual fund scheme. Historical turnover performance of mutual fund helps to understand the expected performance of the fund in the future. If the turnover is high, it results in increased costs for the fund and decreased returns for shareholders due to shareholders paying spreads and commissions when buying and selling stocks.
Mutual funds are managed by fund manager; hence they play a crucial role in the mutual fund performance. He is responsible to make the investment decisions, therefore knowing the experience and expertise of your fund manager is very important. Know who your fund manager is, how his past record was and what will be the performance of mutual funds he has handled before.Fund Performance
It is important to look how the fund has performed over the long time in various market cycles. Scheme should have consistency over outperformances. This will help to make informed decisions when planning to invest in mutual funds.
I am pretty certain if you keep these simple aspects in your mind, you will be able to easily choose mutual fund scheme for yourself.
(The Author Rahul Jain is EVP, Edelweiss Wealth Management)