5 THINGS YOU SHOULD KNOW BEFORE INVESTING IN A MUTUAL FUND

5 THINGS YOU SHOULD KNOW BEFORE INVESTING IN A MUTUAL FUND

Investing your funds in mutual funds is the best option available for those who want return keeping market fluctuations in mind. Mutual fund schemes help investors to take benefit of capital market investing to create wealth. It will be highly beneficial for you as an investor to enter the market as early as you can to get high chances of creating wealth. People often are heard complaining about mutual fund investments as mutual funds and the market are unpredictable and contain risk.

But, mutual funds online are one of the easiest investment option available, which gives you the flexibility to invest your hard earned money based on your risk appetite and duration. You are just required to have authentic and sufficient information to begin your investment in mutual funds. Following are the five important points that you should be aware of before investing in a mutual fund investment in India:

  1. Fund Type

People often associate mutual funds in India with high risk and equity. But, it is not the case in mutual funds as it can be diversified into three primary categories on the basis of the risk involved. You can consider making investments depending on your risk appetite and your investment goals. If you have long-term investment goals and an investment horizon of five years or above with high risk involved, then equity mutual funds are the best option available for you. On the other hand, if you are a moderate investor then large cap and multi-cap investments (or diversified equity) are the best options available for you. If you are an aggressive investor, mid cap and small cap schemes with high returns and high risks involved can assist you in achieving your financial goals.

Following are the three diversified mutual fund schemes, which can you opt for:

Equity Funds

  • Provides high returns at high risk which is beneficial in the long-term
  • Make investments in the stock market
  • Exposes to market volatility
  • Best investment choice for more than 5-year time horizon

Debt Funds

  • Offers stable income at low risk
  • Invests in bonds, debentures, government securities and money-market instruments
  • Aims at preserving wealth
  • Best investment option for less than 2-3 year time horizon

Balanced funds

  • Offers balanced returns at low risk
  • Invests in equity and debt funds
  • Best instrument for 2-5 year time horizon
  1. Risk-Return equilibrium

A good mutual fund scheme is one which provides higher returns than its peers taking the same type of risk. Mutual funds are more profitable if kept for a longer duration of time. So, as an investor, you should try to invest in mutual funds at an early stage. This will enable you to stay invested for long giving you better returns. You can also begin your investments with equity mutual funds as they will assist you to meet your financial goals. Investing in equity mutual funds for a longer duration of time enables you to even out the market fluctuations. But you should consider switching to a debt fund when you are near your retirement age. This will enable you to keep your funds earned and saved securely. Also, you can use a mutual fund calculator to check investment that you can make and the potential return that you can earn on it.

  1. Fund performance

One of the most important points to check and consider before investing your savings in mutual funds is to check the past performance of the fund. It is really important to check a mutual fund’s past performance before making a decision. It will provide us with a fair idea of the potential that one mutual fund scheme holds. As an investor, you don’t want to invest in a fund which only performs well when the market is high and falls as soon as the market hits a low. You should look for a fund which is able to survive the market volatility to provide you with consistent returns. Always consider a fund which is able to outperform its peers and perform well over the long term.

  1. Expense ratio

An expense ratio is an annual fee which is charged by all the funds. It comprises of management fee and administrative costs. Mutual fund schemes with lower expense ratios are beneficial for you as they have higher assets under management. As the fund size grows, these expenses are spread out over more investors, thus reducing expenses.

  1. Fund house experience

Before you decide on a mutual fund scheme to invest, you should select the fund house which has been there in the market for long and has gained experience. With some research, you can easily identify fund houses that are available in the market for a long duration of time. Moreover, with a higher experience, you will be able to check all the previous data to analyze the potential returns.

Conclusion

To earn better returns on your hard earned money you should consider investing in mutual fund investments. Do your research and consider all the points mentioned above to select the best mutual fund online.

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