Mutual Funds: 6 Best tips for choosing best Mutual Fund:

 Mutual Funds: 6 tips for choosing best Mutual Fund:

Everyone expects their investments to grow rapidly and get good returns. In this order, it is considered to invest in a good mutual fund. So how do we choose a mutual fund that will remunerate according to our goal? What factors should be considered? Let’s see.

In fact, there is no such thing as a good mutual fund. A fund that gives good returns today may be disappointing after a year. What was once a loss-making crop may now be reaping profits. Moreover, a fund that suits one’s goal, may not give the desired return to someone else. Considering all these, there are no good mutual funds. In this context, when you decide to invest in MF, you need to be clear about what your objective is.

What suits your goal ?

Children’s education, their marriage, retirement. A specific goal has to be set first. Then you have to estimate how much money will be required for it. If you want to get that amount of returns, you need to search for what kind of und to choose. You also have to decide how long you will invest. Risk should also be taken into account.

For example, if you think you can invest only for a year to two years. Financial experts suggest that debt funds are flexible. Opting for small and mid-cap funds for such short-term goals may not be of much benefit. Financial experts suggest that small and mid-cap funds should be considered only if they feel that they can invest uninterruptedly for at least seven years. If you want to invest for three to five years, you can resort to hybrid funds. Experts suggest opting for equity mutual funds only if you want to invest in MF’s for more than five years.

It is necessary to decide which mutual fund category is suitable according to the objective and again you need to see which fund to choose in that category. There are a few factors that need to be taken into consideration.

The fund’s past history:

This is one of the important factors to be considered while choosing a Mutual Fund. However, as mentioned earlier, the fund’s history may not determine future performance. But it is useful to come to an understanding. The extent of downside protection can be determined.

Constancy:

Even though a fund is currently offering good returns. It may have faced severe ups and downs in the past. If there are serious fluctuations in the performance of the fund, you have to think and take a decision. When choosing funds where volatility is high, one should be careful.

The performance of the fund manager:

Let’s say you decide to invest in mutual funds through a fund manager. In that case, the manager needs to know how his past performance has been. It is better to stay away from managers who do not give much profitable returns.

The amount of assets under management:

The amount of assets(AUM) under management of a mutual fund scheme should also be taken into account. This indicates how many people have subscribed to the scheme. If the AUM is high in equity funds, especially in small cap funds, it becomes difficult for fund companies to decide which companies to invest in and which ones to exit from. Similarly, in liquid and short-term debt funds, if the AUM is high, there is no risk of redemptions.

Expense ratio:

The expense ration is the fee charged by mutual fund management companies (ASMs) for fund management, promotion, distribution, etc. This includes the total cost of running a fund. Experts suggest that it is best to pt for an MF scheme where the expense ration is low.

Taxes:

The profit on every investment we make comes under the purview of income tax. Similarly, profits on mutual funds will also have to pay tax. In case of equity funds, how long have you invested? Based on that, long-term capital gains tax and short-term capital gains tax will be applicable. Debt funds have an indexation advantage on capital gains.

Based on all this, it is not enough to choose a mutual fund and start investing. Its performance should be reviewed from time to time. If necessary, exit the fund and switch to another one. You also need to balance mutual fund investments in line with your investment portfolio.