Things Keep In Mind While Investing In Mutual Funds?

What things should be kept in mind while investing in mutual funds?

In today’s era of inflation, we all need a means of investment which can give good returns even with less investment and mutual funds fit the bill perfectly. Like any other investment instrument, it is also not completely safe, but by keeping some things in mind, we can not only choose a good mutual fund scheme but can also increase the returns of our investment manifold. Is. So the question arises, what are the things that should be kept in mind before investing in any mutual fund scheme? In today’s article, we will know these things. So that even if you have very little knowledge of finance, you can still take a better decision.

Risk: Every scheme of a mutual fund has its own risk level which is shown in the form of a riskometer in the scheme document. Similarly, according to the age and income of the investor, he has his own capacity to take risk. While choosing any scheme, pay attention to its risk level. Equity and equity related schemes fall in the category of high risk, whereas in debt schemes the risk is significantly reduced.

If you are also young, earning well and want to invest for long term goals then equity i.e. high risk high return can be best for you and if you are near retirement and want to invest in a stable investment without taking much risk. If you want to get returns then you can invest in debt and money market funds.

Investment Goal: Investment goal means for what purpose you want to invest. Everyone’s dreams and needs are different. Some have to save for their children’s marriage or some have to invest to buy a house. Similarly, their time period may also be different. If you are investing for a specific objective, choose the scheme accordingly. Like Children Career Plans have been made by AMC to fund children’s education and marriage etc. On the other hand, if you want to avail the benefit of high returns or tax savings, you can invest in Equity Related Tax Savings Scheme (ELSS).

Entry and Exit load: In many mutual fund schemes, if you take redemption before a fixed time, i.e. sell the unit, then you have to pay some charge in the form of a fixed percentage. In most equity schemes, if you take redemption before one year, you may have to pay an exit load of up to 1%. However, in some equity schemes it can be more than 1%. Therefore, while investing, keep in mind that even if you have to take early redemption in case of any emergency, minimal charges will be incurred and you will be able to avail maximum returns.

Direct and Regular plans: Nowadays many apps like Grow, Zerodha coin etc. allow investors to invest directly without having to deal with any agent. Direct plan is good in a way and it gives higher returns on your investment in the long term because it does not include agent’s commission. But, if you are a new investor and have very little knowledge about the market, then this decision can lead to loss instead of increasing your returns.

Therefore, take steps according to your knowledge and understanding. If you have very little knowledge of the financial market, then it is not a bad thing to invest with the advice of an expert who will balance your portfolio from time to time according to the market situation.

Expense Ratio: Every AMC charges certain fees for managing a mutual fund scheme which is necessary to meet the management expenses of the AMC. This ratio is different for every scheme. Therefore, while choosing a mutual fund, keep in mind that the expense ratio of the scheme should be minimum. This expense ratio can be between 0.80 to 2.80% which also keeps changing from time to time with the change in management. A low expense ratio confirms that only a small portion of your investment is being used by the fund house for expenses and more and more is being invested in the schemes.

Fund Performance: Before investing in any scheme, do research on its average returns over the past years. Although it does not guarantee the future performance of the scheme, it still gives an idea about the ability of the fund manager. Choose a mutual fund scheme which is consistently giving positive returns even if they are low.

Suppose one scheme is giving 8% returns every year, while the other scheme is giving 25% returns in one year and -5% returns in the next year, that is, the returns are not consistent. In this case, the first scheme is better than the second because in the long term the returns of this scheme will be better than the first. Apart from this, attention should also be paid to asset allocation, stocks included in the scheme etc.

To check the returns and other ratios of a mutual fund scheme, you can take the help of the online brokers mentioned below. If you have not invested in mutual funds yet and want to start your investment journey, then through these you can easily invest in mutual funds sitting at home.

ET Money

groww

Zerodha Coin

cams

Conclusion

Investing in mutual funds can be your best decision in the journey of achieving your financial goals. But wherever or in any asset, it is important to think carefully about the risks involved, returns and your objective before investing. The points mentioned above will help you in choosing a good mutual fund. However, there is no guarantee that even after following all the tips, your investment will give only good returns. The returns of investment in mutual funds largely depend on market fluctuations and the efficiency of the fund manager. That is why it is important to adopt long term thinking and keep reviewing your investments from time to time.