Chilling by watching Netflix or partying hard on weekends? Going to the office or taking a day to relax? Going on a long drive or going on a trek? Or maybe, you are torn between a vacation to Manali or Pondicherry.
With so many options to choose from, you might find it confusing to pick one. It’s definitely easier to choose to take a day off from your hectic work schedule to relax than planning out an entire trip. Throw in the expense planning and setting up an itinerary for a trip and you are back to choosing to watch Netflix.
Your financial decisions follow a similar pattern. Making your financial calls is equally easy, yet hard. Why? With over 3,500 mutual fund schemes to choose from, choosing one can get really tough. You dread the tedium of going through 100s of mutual fund characteristics, which in all honesty, you might have little clue about. And, you might take the easy way out and decide to postpone the start of your investment journey. That’s a big mistake!
You need to start your investment journey now to ensure your financial security going forward! The process to choose mutual funds in line with your goals might seem tough, but this article will attempt to simplify the process for you!
Let’s help you figure out, how to filter out what is best for you?
First, set up your financial goals and then take heed of the following 5 factors that will help you select the perfect mutual fund:
- Expense Ratio
All organizations incur a lot of expenses while administering a Mutual Fund. From management fees to brokerage fees to administration expenses, managing a fund is no easy task. These expenses will be borne by you, as the investor. This means that the NAV or Net Asset value of the fund is reduced. Expense Ratio refers to the percentage of assets that go toward financing these expenses. A high expense ratio can eat into your returns, which isn’t fair. That’s why, ideally, you should choose a fund that has a lower expense ratio as compared to other similar funds.
- Exit load
You are charged while entering the club, but never while exiting it, right? Well, mutual funds function differently. Exit load refers to a charge you have to pay if you decide to leave the fund early. This is because mutual funds, in principle, encourage long term investment. As such, when you sell your units of a mutual fund within a short period; most funds charge you a fraction of your net returns. Which is unfair, since a high exit load eats into your investment value. Ideally, you should stay invested for as long as possible. But it is equally important that you choose a fund with a low exit load.
- Fund performance
The previous performance of a fund is something you should always consider while making an investment decision. It is an indicator of how effectively your fund has performed in the past and thus, it can give you a fair idea of its future performances. However, you can consider the following factors while considering the mutual fund of your choice-
- The risk involved
- Returns you receive
- The kind of portfolios your fund holds
- How often does the fund refurbish and revamp the portfolio i.e how quickly does the fund adapt to the market conditions
A comparative analysis of the fund performance over the years and comparing it with other fund houses can help you reach an informed decision.
- Investment objectives
Every mutual fund scheme has an objective. This objective defines what kind of investments will the fund make. Whether the fund will invest in equity i.e. will have a growth-oriented perspective or will invest in debt, with an income-oriented perspective or otherwise. Mutual funds can also have tax saving objectives. Investment objective defines how much will a fund invest in each asset class.
As an investor, you should be clear about your expectations from the fund. You can only achieve the best returns if your objectives are similar to the fund aims. For example, if you have an objective of capital appreciation, in the long run, you should be looking at equity oriented mutual funds. Similarly, if you do not wish to take on risk and play safe, you should be looking at suitable debt mutual fund schemes.
- Philosophy of the fund house
You would want to house your hard earned money with a safe, non-shady and ethical fund house, won’t you?
Understanding the philosophy of the mutual fund house you choose is extremely important. Sound, ethical processes and philosophies influence the performance of your fund. Your hard earned money should not be left at the whims of non-ethical financial processes.
Take advantage of the emergence of best mutual funds apps such as Sqrrl. With a few clicks on your mobile, you would be able to navigate through 100s of mutual funds, filter and sort them according to your needs, easily compare them with similar funds, and start investing immediately!
It is essential that you set financial goals, and start your investment journey immediately! Use the factors mentioned in this guide to find the means to fund your dreams. So, go ahead, do your research and select the mutual funds most suited to you!
