If you are new to stock market investment and reluctant to take risks of directly investing in stocks, mutual funds can be a good option.
With Mutual Funds, you can invest in hundreds of different stocks in a single transaction and also get expert asset curation via fund managers. Fund managers research the market trend and invest in different stocks to bring better returns for a mutual fund.
However, why and how should you select a mutual fund scheme? Let’s understand the same in this article. You can also opt for a mutual fund course online to understand this concept in detail.
Table of Contents
4 Steps to Select the Right Mutual Fund?
There is no ‘right one’ scheme in the market. There are two prime aspects you need to consider: your investment objectives and the cost of investing in a particular mutual fund. Let’s get a better look at these four major factors.
1. Investment Objective
Before choosing your fund, decide your financial goal. Decide how long you want to invest and at what rate of return.
The longer you invest, the better return you will receive which will help you fulfill your investment goals. However, the rate of returns also varies with your risk appetite.
2. Risk Tolerance Level
Select the mutual fund type according to your risk tolerance. Mutual funds without risk aren’t possible. However, you can always select a lower-risk fund. Large-cap (large business stocks) mutual funds give you stable returns with lower risk.
If you have a little higher risk tolerance level, you can also go for mid-cap or small-cap funds. You should note that these two funds have comparatively higher risk, but if you invest for a longer period you won’t be affected by the small ups and downs. In the long run, you will benefit from better returns.
3. Associated Expenses
There are certain expenses you pay for investing in mutual funds. Thus, the first thing you should do is check the expense ratio. It is a percentage charged by the fund house for the expertise offered and other related services. It is charged based on your investment amount. You also need to check exit load – a fee for exiting or retrieving your fund before completing a certain tenure.
You should also consider the taxation criteria of your fund. You will bear different taxes according to your investment period and profit.
These expenses can reduce your investment returns and thus, you should compare different funds before making a choice.
4. Experience of Fund Manager
This is another crucial point that you should consider before selecting a fund. Check for past experience and background of the fund manager handling mutual funds.
Research about the kind of mutual fund schemes he has handled in the past and their performance. This will help you understand whether the fund will achieve the targeted returns and whether your invested capital is safe.
Based on these four parameters, you can select a mutual fund that suits your requirements and long-term goals.
If you want to learn more about investing in mutual funds, you can join Upsurge.club’s mutual fund course. This course will not only help you understand the basics but also help you get with different methods of investing in mutual funds.
Conclusion
Remember that knowledge is the key to becoming a successful investor. The profit of Mutual Funds depends on different factors including the expertise and skills of the fund manager and your understanding. To learn more about mutual funds and other investment instruments, join Upsurge.club’s stock market investment courses
