If you’re new to investing in Mutual Funds, choosing one isn’t easy. There are categories, funds, schemes, and even more complex words to wrap your head around before you can finally start investing.
Narrow down on a fund that’s right for you using a singular, structured approach. It should help you decide if a particular fund is a good investment, for you. And here are a few things, we’d suggest, you must consider before investing.
Performance comparisons between the same type of fund and their numbers help. Comparing performance numbers of different funds should help you get to a figure you wish to invest in that category.
COUNT THE STARS
No investment, especially one that can get a meaningful return, is absolutely risk-free. Typically, the riskier a fund, the more potential for it to earn you high(er) returns. But not all funds are run equally well.
Hence it helps to see the star rating accorded to a fund and comparing that with a similar fund, five or four-star rating, and then making your investment basis their individual performance and risk.
Even though performance and risk should be your reasons to invest in a specific fund, the portfolio tells you what the fund has invested in or owns. It could be a mix of large, medium or small companies in the case of an equity-based fund. Typically, a fund may invest in equity that may seem overpriced but is/are growing fast or low-priced stocks of companies growing at a slightly gentle pace.
Similarly, with fixed-income funds, one can understand if a fund prefers high-return, long-duration securities which might be more volatile or more stable, low-return short-duration securities.
The last and not necessarily the most important decision is the cost. Always make sure the performance differential between funds is significant enough for you to shell out the margin, this applies especially for fixed income funds where the performance between funds is insignificant.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.