When you start becoming concerned about maintaining a stable life with sufficient money to maintain your family's lifestyle, you start understanding and appreciating the necessity of investing for the future. In addition, you become aware that no matter how settled things may seem at this time, a single unfortunate event can disrupt everything in a moment. To be prepared for any eventuality and outcome, it is essential to make an investment plan, and the first market products you will discover are mutual funds.
When it comes to investing in a mutual fund, the Asset Management Company, or AMC, pools money from several participants and invests it in assets like stocks, bonds, short-term money market instruments, or a mix of these. As an investor, you must remember that not every scheme or portfolio of schemes will be right or profitable for you. The suitable mutual fund scheme for you will be the one that best meets your investment goals and risk tolerance, as well as takes other factors into account.
The following aspects must be kept in mind while choosing a mutual fund scheme for your portfolio:
Your Goals
Keep your life goals in mind when investing in a mutual fund. Specifically, what is the goal of your investment? How long are you willing to stay invested, and what returns are you expecting from it? Without a specific objective, small market fluctuations might prompt you to sell your investment.
Goals can be short-term, such as the down payment for a property or going on an international vacation. It may also be for the long term, such as retirement or sending kids to college. Depending on the answers to these questions, you can choose a debt mutual fund, a mutual equity fund, or a hybrid mutual fund.
The Risk Involved
You should evaluate the investment risk before selecting a mutual fund and determine whether the risk is manageable. Different mutual funds carry different degrees of risk and returns.
For example, mutual equity fund investments are susceptible to market changes. But keep in mind that the returns can be significantly greater than those of other forms of funds. These kinds of investment vehicles may be appropriate for long-term, aggressive investors. On the other hand, mutual funds that invest in debt tend to be more secure. However, the returns might be lower than mutual equity funds. These might be appropriate for cautious investors.
Liquidity
You should know when you are going to need the returns from the investment. The period for which you are willing to invest is crucial, as different funds generate the expected returns in different time frames. This is significant because the benefits of compounding are best observed in long-term investments.
For example, equity mutual funds might produce the anticipated profits if you can commit to the investment for at least a year. On the other hand, choose liquid funds if you wish to raise money in a shorter time frame.
Fund Performance
You should take the fund performance over a significant period of time into account. For example, it is reasonable to assume that the fund is not a smart investment if it hasn't been able to outperform its benchmark for three, five, seven, or ten years.
Additionally, looking out for the performance statistics of the fund manager or fund management group while assessing a fund's performance is crucial. You will benefit from an experienced fund management staff with a respectable tenure and a decent track record of success.
Expense Ratio
The cost charged by an AMC for the administration, management, promotion, and distribution of a mutual fund is the fund's expense ratio. This amount includes all costs related to maintaining the fund. The capital markets regulator SEBI (Securities and Exchange Board of India) has placed a limit on this amount at 2.25 percent of all fund assets.
As an investor, you must seek out mutual funds with a low expense ratio. This is because although the percentage may seem modest, it will have a greater impact when applied to your entire investment portfolio.
CONCLUSION
There are now a lot of platforms that provide you with the tools you need to make financial decisions. For example, Quantum Mutual Fund, an investor-first AMC, offers a range of funds and assists you in choosing the right one in a few simple steps. You can access everything you need through their online platform, which simplifies wealth creation. You can learn, plan, and invest in some of the top mutual funds in India in just a few clicks.
Therefore, you do not always need to rely solely on the agent's advice. Instead, doing your research and keeping the above mentioned factors in mind will assist you in choosing the right mutual fund for your portfolio, be it a well-performing mutual equity fund or the best liquid fund for your short-term needs.