6 Things to Consider Before Choosing Mutual Funds

Mutual Funds

6 Things to Consider Before Choosing Mutual Funds

Mar 27, 2018, 1:39:37 AM Business

Before finalising, the top mutual funds to invest in 2018, it is important to properly assess your mutual fund investment in relation to your financial goals, specifically your risk appetite. There are many mutual fund investment options available to you, then, among the various options of top mutual funds to invest in 2018, which is the best personal option for you? Be doubly sure, in picking up the best fund investment, by exploring and comprehending the following factors associated with them. 

1. Debt vs equity

You should be first clear with the basics. Debt funds offer you guaranteed income returns as the majority of funds are invested in government securities. Individuals, who are seeking a strong growth of funds, must gain exposure to equity investment.

2. Your investment goal

The next step or one of the prominent thing to consider is; you need to define your investment goal in the context of the time of investment. In other words, you need to be sure if you are looking at funds for more than 5 years, for this is the minimum period of investment through which you will earn (returns) handsomely. The longer the duration of mutual funds investment, the more strategic is your amount of earnings on the money invested.

3. Your risk appetite

Depending upon your risk appetite, you should take the investment plunge in Large-cap, Mid-cap, or Small-cap funds. One should ideally be aware of the diversification of their investment portfolio. Long cap funds, for example, is for a conservative equity investor and must be preferred for long-term market-linked investment. Similarly, small-cap funds will likely give you quicker returns but are associated with a high-performance, stock-market risk. 

4. Seeking help from fund managers

One should ideally appoint fund managers for a very simple reason- you need professional assistance to manage your mutual funds (MF) portfolio. You need to be doubly sure that all your funds are channelized through a diversified set of stock buying, and that, your fund is continuously supervised and reallocated to fetch maximum gains. A fund manager will efficiently manage your funds through market timing, buying the right stocks, predicting the interest rate movement, etc, thus making your funds perform at the different points of time. 

5. Cost of Mutual Funds

The associated cost factor with MF investment should also be considered. The charge of maintaining mutual funds can be measured in terms of the expense ratio. The expense ratio is the cost of managing your investment through a mutual funds policy. It broadly includes the fund management and distribution related expenses. Which means that the cost of earning good returns on mutual funds investment has to be borne by the investor in the scheme. Hence, there is a need to monitor the performance of your funds closely. To achieve maximum returns, the gap between the expenses incurred and interest income accrued should be minimised. 

6. Mutual funds investment based on past performance

Most of the people have a tendency to invest in stocks based on the past performance review. Well, there is nothing wrong with it except that you should not limit your fund's review to a short duration of past 6-months. You should ideally extend it to a 3-5 years action. Only, then you can arrive at conclusive evidence to ensure a good rate of interest income. A larger perspective also means that funds are appropriately evaluated, including their working in different market cycles and the interest earned on the funds. You need to give sufficient time to allow your funds to perform. It can only take effect in the long-term.

While mutual funds help you achieve your long-term goals, it is advised to consider all the factors if you want to find the top mutual funds to invest in 2018.

Published by sandeep Malik

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