Basic Steps to Pick Good Mutual Fund Schemes

Indian mutual fund universe comprises 5,500 schemes. And over 300 are in the equity alone. Obviously, it is not an easy thing to choose the fund that fits into an investors scheme of things.

Mutualfundwala, gives you a few basic steps that shall assist you in choosing a fund that may fit into your financial plan.

  • Investment Goals: we need to invest with an objective in mind. An objective or rather a financial objective can be any or more or all of the following:
  • 1. Planning for a house.

    2. Child Higher education/marriage/settlement.

    3. Retirement planning for self and spouse.

    4. Contingency planning or planning for an expensive vacation etc.

    So longer the time horizon higher is the risk appetite. An investor with over 7-10 years of investment horizon can take aggressive 100% equity funds. A short-term goal, for e.g., planning for a vacation in a year requires zero or no risk plan. So, investors need to begin with an end in mind. When you know where to go the path becomes clear. You may connect with Mutualfundwala to get assistance on what funds will suit your investment objective.

  • The Fund House: This is extremely crucial. An investor cannot trust his or her money with a new AMC (Asset management company) that has little or no experience in managing wealth. The fund house is expected to appoint a well-qualified fund manager with a proven track record. Besides this, a solid research team to assist the investment officer is needed. So, a proven track record with deep pockets alone will decide how the fund house will fare in the long run.
  • Fund Performance: For every investor, the ultimate goal is returns. A retail investor needs to look at the following variables before deciding on the scheme.
  • 1. Past track record.

    2. Alpha (positive alpha means the scheme is beating the benchmark and vice versa).

    3. Rating provided by various reputed financial websites like moneycontrol, valuereseacrhonline, Bloomberg, CRISIL etc.

    4. Peer Comparison.

    5. The Expense of the scheme. This is very underrated but a very important point in deciding the long term returns of the scheme.

  • Risk appetite: Every investor should be well aware of his or her risk appetite. Or else, as n when the markets slide the investor will panic and exit the investment altogether. This may cause losses and throw the entire financial plan out of the window. Following is important:
    • A conservative investor should invest in only equity-oriented balanced schemes or in conservative large-cap mutual fund schemes. Preferably take the SIP route.
    • A moderate investor should invest in diversified equity (large-cap and mid-cap) schemes.
    • An aggressive investor may go for midcap and small-cap schemes.
    • An aggressive investor can also go for sectoral schemes if he/she can monitor the investments and sectors.
  • Disciplined behavior: It is difficult not to get perplexed by upheavals in the market. However, a disciplined investor gets rewarded. Mutualfundwala advises its investors to not get swayed by exuberance and pessimism of the stock markets but to stick to the plan and focus on the long term.

Follow these small steps and have a good advisor that inspires trust.


top