Mutual Funds: Basics of How to Select a Mutual Fund

If you are not an expert in mutual funds and related investments, here is the detailed and focused information about mutual funds and investment tips.

How to Choose a Mutual Fund?

Mutual Fund Investments

What is Mutual Fund (s)?
If you are not able to invest directly into “shares”, you can invest through an expert on shares which is called mutual fund. The money that we give will be invested by a fund manager in shares and this investment will give returns based on the share markets ups and downs.

Why Mutual Fund?
Not everyone is a master in fund and investments. Like how we go to doctors to take care of our health, here to get returns on our investment we get the help of mutual fund manager.

During the last 10 to 20 years, the economy is functioning along with business sector and service sectors. Due to this, even a small change in the global economy will have its impact in the share market that a common man cannot be aware of or naturally one cannot be updated on these every time. For persons like this mutual fund is the opportunity.

Next big advantage of mutual fund is “wide” investment option. Instead of dumping your investments in just one share, you can avoid big loses by investing in multiple shares like large, midcap etc.

How to choose a mutual fund?
Everyone will have their own desires and aims, financially. Make your child a doctor or go for an overseas vacation etc. the dream would change as the time goes. First decide your life’s goal and estimate how much you would require attaining that destination.

Next, think about the motive behind your investment. Are you investing to save on tax or for a regular income or for more income or for a long-term plan? Whatever it is but, know the reason for your investment thoroughly.

There are three types of investors – one those wants to take a minimal risk, second type are who can go for a moderate risk and the third kind are who can take high risks but to see profits. If you are in the first category of minimum risk it is advisable to invest in debt funds.

Debt funds are to invest in government debt funds. Those who can go for moderate risks can invest in index fund, balanced fund and asset allocation funds. If you are for high risk for profit then you can choose to invest in equity and midcap funds.

Performance and Management
Before investing in a fund you cannot just decide its future performance by just going through its past performances. The particular fund that you have decided to invest has to compared with other funds of similar types. For example: If you investing in midcap funds, it has to compared with other midcap funds of similar types.

Also, the performance of the fund management, efficiency of the fund manager and his performances and such information has to be seen.

When you are investing in equity diversified funds, the funds collected through this will be invested in sensex funds. So, see how much sensex has profited you. If equity diversified funds give you more profit than sensex it is obvious and advisable to go for equity diversified funds for investment. If it is vice versa, so the quality of funds will be too.

Fund Level
It is better and safe to choose a fund that holds moderate asset value as at times even a fund that hold high asset value can go down and vice versa. Going for a fund with moderate asset value is safe.

Must have Follow-Ups
There are people who invest in funds and will completely forget it further. They won’t look further for the funds’ performance and how is it going? Whether is it positive? etc. Other set of people who look for fund’s NAV daily and get worried about the downs even if it is at the minimal level than the previous day. Both these two approaches are not good for a investor. At least once in three months our portfolio has to be checked to make sure how our fund performs and whichever is not performing well, it is better for us to quit from it.

If one understands these basic features and steps of mutual funds – anyone can perform excellent in mutual fund market.