5 points to note before investing in mutual funds
Mutual funds can not only give you exciting returns, but also help you save on taxes. However before you invest in them, be sure to do your research. This will help you be better informed and invest more wisely. Factors such as your risk appetite, the type of mutual funds you choose to invest in, the investment lock-in period or minimum investment period, returns over successive years, etc., are just some examples. Here are the questions you should ask before you choose a mutual fund.
- What is your aim?
The first question to ask yourself is what is your aim of investing in a mutual fund? Are you investing to maximize profit and make money? Are you investing to save the amount you already have and save on taxes? Or are you looking at having a steady source of income? Once you answer these questions, you know your primary goal, which helps you in selecting the type of mutual funds you can investment in, be it a high-risk long-term investment or a short-term low risk investment or any combination thereof. Knowing your risk appetite and the time period for which you can invest also helps in choosing your mutual funds.
- Have the returns been uniform throughout?
Once you have made the decision as to what type of funds you are investing in, you need to dig deep into the mutual fund portfolio. Find out past turnover profit and loss and see if the mutual fund has been profitable year after year or has there been a huge profit one year and a major loss the next. Just looking at the current or previous year’s record is not sufficient. See the mutual funds’ performance spread out over the last 10 years. The uniformity of the invested returns is a good way for you to judge where you want to invest your money in that particular mutual fund. By digging deeper into the portfolio, you will also know what type of securities you are investing in.
- What is your expenditure in proportion to the returns?
The next question you need to ask is how have the profit graphs been over the years. It is not necessary that the more you invest, the more you make. You could invest a large amount and get less profit as compared to investing a small amount and getting a big profit. To understand how this works you need to study graphs of the mutual funds you wish to invest in and find their standing. The aim should be to invest the least amount and get maximum profit. Another thing to do here is to understand the expense ratio. This is the amount you spend towards the management of your mutual fund, which is deducted from your investment. A lower expense ratio is usually a better bet when it comes to mutual funds.
- Is your money in the right hands?
While you will also look at which securities your money will be invested in, what is most important is knowing how much you can trust the fund managers. Study the record of your fund managers and their portfolios in the past. Tracking their performance over just one or two years won’t help in this case, since there may or may not be any uniformity in the investment returns in such a short period of time. Portfolio managers with at least 15 years of experience are the best ones to trust and if you see profitability in their record, then those are the right people for you. These managers would know about the securities your mutual fund is investing in very well and thus would invest to maximise your returns. So choose a mutual fund based on who is on the driver’s seat and base your decision on their experience and track record.
- Are there any inside costs that you should know about?
After checking the mutual fund rates, you also need to check whether there are any hidden or inside charges, fees or expenses. Thus reading the mutual fund prospectus is essential as you might discover extra charges that you were not aware of earlier which you have to pay at different times once you invest.
These are the 5 main questions that will help you choosing the right mutual funds. Like many investors, you will need to give yourself some time even equipped with the answers to the questions above, and start with a small investment, which will help you learn as you go. The most important step is choosing your mutual fund investment with the right institution. One of your options is investing with Bajaj Finserv, which ensures that your investment is professionally managed, offers transparency, low transaction costs and some of the best interest rates. To know more click here: