How to choose Mutual Fund?
(What is Mutual Fund):
“Mutual fund” is kind of investment scheme, usually run by some asset management company. They can collect money from investor and invest their money on their behalf in different stocks, bonds, securities, etc.
(Why Mutual Fund):
“Mutual Fund” helps people, who don’t have idea about stock market or don’t know how to invest in market. Generally every Mutual Fund has/have fund manager; they are investing the investors’ money in the market in behalf of investor and charges small fee for this.
So, it’s a very good idea to invest in Mutual Fund, if you don’t know “How to invest in Stocks, securities, etc.?”
(How to Choose Mutual Fund):
If you want to invest in Mutual Fund, need to look into some guild line and decide your mutual fund, which match your requirements.
Some criteria given below need to look into these before investment: –
- Identify your goals and risk taking capacity: –
Before going for any mutual fund, investor must first find out his/her goals and desire for the money being invested. Goals means there are long-term capital gain desire and current income also. “If you are looking for your retirement, then need to go for long-term capital gain Mutual Fund”. “If you are looking for your recent income like college fee, then you need to go for short-term capital gain Mutual Fund”.
In addition, investor must look their risk taking capacity, Can the investor afford and mentally accept dramatic positional in portfolio value? Or, is a more conservative investment warranted? Identifying risk taking capacity is as important as identifying a goal.
- Types of funds: –
If investor wants to take risk and hold his/her money for longer period of time, then best fund may be a long-term capital appreciation fund. These funds are holding high percentage of their assets in common stocks and hence, consider being volatile in nature. They have capability to return high rewards over period of time.
In other way, if the investor needs to keep his/her money for short period of time and want some incomes, then best fund may be income funds. Government and corporate debt are two of the more common holdings in an income fund.
- Fees: –
Generally Mutual Fund charges some fees to invest investor’s money in different securities, stocks, etc. As per their guild line, they may charge 3% to 6% of the total amount invested or distributed, but this number can be as much as 8.5% by law.
Some fund charges a sale fee, which is known as load fees. It’s of two types (a) Front-end load (b) back-end load.
Front-end load fee is paid out at the initial investment made by investor and Back-end load fee is paid out when an investor sell his/her investment.
- Fund manager tenure and experience: –
Fund manager plays very important role in mutual Fund performance. It’s a process oriented approach, still fund manager an ultimate decision maker and his experiences and view to look into market impact a lot.
So, need to know about your mutual fund “Fund manager” and his/her “history”.
- Scheme assets size: –
Need to know how many assets are containing by management. If more assets are available under management, then it’s good for managing the fund otherwise it’s very risky to invest in that mutual fund. In schemes with larger assets under management this risk gets minimized.