Mutual funds are a convenient way to invest in the markets. Numerous fund houses offer a wide platter of schemes. The choice before the investor is so wide, that he is often baffled. Some investors who have tasted attractive returns in the past believe that all funds can work the magic for them. When they get mediocre results, they realise that their time and money are wasted.
Today, the stock markets are badly beaten. People with low risk appetite are locking away their savings in debt instruments. Some investors consider mutual funds a safer route to remain invested in the markets. How does an investor evaluate the performance of mutual funds? How do you ensure that your money is not locked in a low or no return scheme?
Don’t rely on past performance
A fund that was yielding consistent returns over the past few years can disappoint the investors next year. Past performance is no guarantee for good future performance. Compare its performance over varying timeframes against the benchmark index and its peers. How well it fares in a bad market condition or a downslide indicates the true potential of the fund.
Get to know the fund manager
The management team led by an adept and skilful fund manager takes crucial investment decisions for you. A well-experienced team that has seen both downslides and upswings in the market can deliver a commendable return.
Check the investment philosophy
Ensure the fund's investment philosophy is in sync with your investment interests. If the fund has a well defined philosophy, the management team will work towards it.
Pick the right funds
Funds can be classified into different categories. Select from equity funds (that invest in equity), debt funds and balanced funds (invest both in debt and equity markets). Investors much match their risk appetite with the right fund category.
Read the fund’s portfolio
In order to understand a fund's performance, compare its portfolio and strategy with other similar funds. Stock allocation, sector-wise allocation, and asset allocation tell investors about the level of diversification. Some funds may have different names but invest in the same sector. If you invest in them, your holdings may not be well-diversified.
Don’t ignore expenses
Some funds charge entry and exit loads. It could be as much as two percent charged when you buy (entry load) or sell (exit load) units of the fund. Further, investing in funds has different tax implications.
Investors must put their money in the right funds. Different investors have varying risk tolerance thresholds. A conservative investor with low risk tolerance level can invest in debt funds. A high risk appetite person can invest in equity or sector funds. Closely match risk appetite and goal with the fund scheme.
Today, the stock markets are badly beaten. People with low risk appetite are locking away their savings in debt instruments. Some investors consider mutual funds a safer route to remain invested in the markets. How does an investor evaluate the performance of mutual funds? How do you ensure that your money is not locked in a low or no return scheme?
Don’t rely on past performance
A fund that was yielding consistent returns over the past few years can disappoint the investors next year. Past performance is no guarantee for good future performance. Compare its performance over varying timeframes against the benchmark index and its peers. How well it fares in a bad market condition or a downslide indicates the true potential of the fund.
Get to know the fund manager
The management team led by an adept and skilful fund manager takes crucial investment decisions for you. A well-experienced team that has seen both downslides and upswings in the market can deliver a commendable return.
Check the investment philosophy
Ensure the fund's investment philosophy is in sync with your investment interests. If the fund has a well defined philosophy, the management team will work towards it.
Pick the right funds
Funds can be classified into different categories. Select from equity funds (that invest in equity), debt funds and balanced funds (invest both in debt and equity markets). Investors much match their risk appetite with the right fund category.
Read the fund’s portfolio
In order to understand a fund's performance, compare its portfolio and strategy with other similar funds. Stock allocation, sector-wise allocation, and asset allocation tell investors about the level of diversification. Some funds may have different names but invest in the same sector. If you invest in them, your holdings may not be well-diversified.
Don’t ignore expenses
Some funds charge entry and exit loads. It could be as much as two percent charged when you buy (entry load) or sell (exit load) units of the fund. Further, investing in funds has different tax implications.
Investors must put their money in the right funds. Different investors have varying risk tolerance thresholds. A conservative investor with low risk tolerance level can invest in debt funds. A high risk appetite person can invest in equity or sector funds. Closely match risk appetite and goal with the fund scheme.
