Mutual funds are considered as best investment in India. Only 2% of indian population invests in mutual funds and stock market. Investing money in stock market or mutual funds would give chance to grow your money. Understanding the different types of mutual funds and it is investment portfolio is important to start investment. Understand the 5 aspects of mutual funds. Analyse the each mutual fund by these factors and decide the best mutual funds suits for your financial planning.
1). Types of mutual funds
2). your investment objective and mutual fund investment objective
3). Mutual fund performance & returns
4). Fund House (AMC)
5). Expense ratio,exit load of the scheme.
Types of mutual funds:
Mutual funds are grouped based on their investment Approach. There are 9 types of major mutual funds.
- Liquid funds
- Debt Funds
- Equity Oriented Large Cap Funds
- Equity Oriented Midcap funds
- Equity Oriented Small Cap funds
- Equity Oriented Specialty/Sector funds
- Equity Oriented Index Funds
- Equity Oriented MultiCap Funds
- Balanced Funds ( Equity Oriented & Debt Oriented )
Debt fund => Your money given as loan.
Equity Fund => Your money invested on companies. You are kind of shareholder of the company. You own the tiny percentage of company ownership.
Your investment & fund’s investment objectives:
Before invest in mutual funds, it is important to know what you are investing for. You need to ask yourself questions like,
1) Are you investing for the short term or the long term
2) what is objective of your investment?
3) What is objective of the mutual fund scheme from fund manager.
Answer all 3 question by comparing each of mutual funds scheme. You will identify the better mutual fund group to investment for your goal.
Mutual fund performance & past returns:
After you select the type of mutual funds to invest, compare the historical performance of each scheme in that group from each AMC. Choose the fund has a consistent track record of beating the category average returns and benchmark returns and how the scheme fared compared to its peers in the group. Few investment forum suggest top mutual funds and best mutual funds for investment. You can consider those rating and analyze yourself. It would help you to select best mutual fund for your financial goal such as valueresearhonline, MoneyControl.
Fund House (AMC):
The fund management practice and the investment process followed by an AMC and the fund manager very important aspects of fund management in the interest of the unit holders. Before investing, you should know more about the AMC, the fund manager’s track record of managing the various schemes along with the scheme that you intend to start your SIP in. Fund manager decides investment objective and strategy for the fund. Fund manager’s decision and approach decides the fund’s growth.
Exit load and Expense Ratio of the fund :
Exit load is money has to paid if you redeem your units before the exit load period. Exit load is a fee charged from an investor for exiting or leaving a scheme or the company as an investor. Exit load differ based on scheme and it may be 1%-2% of redeem value. Other important factor to consider is expense ratio of the fund.
Expense ratio comprises of management fee, brokerage charges and administrative costs etc. and charged to the scheme annually. If funds has many investor and large amount invested(AUM) on mutual fund, the expenses would be shared between all the fund investor and expense would be minimal for each investor. If new mutual fund or average number of investor in the mutual fund, it would be high. Consider the mutual fund expense ratio, total amount invested in the mutual fund. The expense ratio should be reasonable against the number of units and amount invested in the mutual funds. If expense ratio is high, fund manager collects high fees or he/she does many transaction based on market. Expense ratio is how much money or fees collected from AMC to manage the fund.
Will discuss more on how to find best mutual fund for your financial objective in the upcoming sessions.