22 Nov, 2012

How to choose the right mutual fund?

Uncategorized

Most of us are of the view that selecting the right kind of mutual fund is a tedious task. But in reality, it is not true. If an investor keeps a few parameters in mind, the selection process can become quick and easy. But before taking these parameters into account, an investor should have clarity about his investment objectives and his risk-appetite.

Once, you are clear about these points, only than you can move forward to consider other crucial factors of selecting the right mutual fund. Let’s take a look at the factors conducive in selecting a mutual fund:

 

Detailed analysis of financial goals

It is the beginning point of the selection process. An investor should jot down the investment purposes e.g. whether one is looking forward to current income or if wealth creation is on his mind by way of long-term capital gain. He has to be clear about the motive of investment. Once an investor gets his priorities set, he is able to select the right kind of mutual funds to reach his financial aim.

 

Measure risk-appetite

Another crucial step taken while filtering the myriad available options of mutual funds is by identifying one’s own risk-taking ability. Once you identify the same, you will realize whether you are a risk-taker or a conservative investor. By knowing your nature, personality type and response to risk, you will be able to decide which category of mutual funds suits your nature like income fund, safety funds or high return funds.

 

Time-horizon

Then there comes time related factor in the picture. In this you need to analyze for how long you can comfortably tie up your money in mutual funds? Knowing this in advance will make the selection process hassle-free and organized. Also, it will solve your liquidity concerns.

 

Type of fund

The next point to consider is the type of fund that suits your financial requirements and your personality type. Choosing the fund type again depends upon your financial motives. If long-term capital gain is your ultimate aim, go for appreciation funds. If current income is something that satisfies you, income fund serves the purpose. But if you are an investor who lies somewhere between the two, balanced fund is the appropriate option.

 

Fees and other charges

The amount of fees and other charges related to a particular type of fund is another factor that has to be taken into consideration while choosing the right mutual fund. There are certain sales fees like load charges and other charges like administrative charges, brokerage charges related to the funds. One has to take this crucial factor into account before blocking one’s money in any particular mutual fund.

If abovementioned points are taken care of, choosing the right mutual fund becomes a child’s play. But you can always take mutual fund recommendations from experts for the right decision. For more information, log onto www.ifmglobal.in.

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