In this article I will discuss some pointers that can be effective in choosing the right funds for investment.
Your Age matters
Before one invests it is extremely important to consider one’s age and financial requirements. Equity investments should be done for a longer horizon, so it is less riskier for a 30 year old compared to a person who is in his fifties. Allocation between Debt and Equity should be done keeping in mind age of the investor. Financial requirements also dictate the type of schemes that you will invest in: buying a home or finance a wedding or educate your children or a combination of all these. Once the objective is defined it is now essential to match various schemes with your needs. You may want a scheme which has a monthly withdrawal option – this could be useful post retirement. There are sectoral funds which may be riskier compared to a balanced fund. Capital protection oriented scheme is also a safer option.
Check the cost
An exit load or back-end load or repurchase load is a charge that is collected at the time of redeeming or for transfer between schemes (switch). The exit load percentage is deducted from the NAV at the time of redemption or transfer between schemes. Some schemes do not charge any load and are called “No Load Schemes” Consider this cost before you invest.
Pick the right house
With over 35 fund houses to choose from it is necessary to look beyond performance. The level of transparency of a fund house is also a very important criterion that you should consider, check for disclosure of portfolios, notice ads, etc.
Keep an eye on details
“Mutual fund investments are subject to market risks, read all scheme related documents carefully”. It is good advice that should be taken seriously.
Statement of Additional Information (SAI) / Scheme Information Document (SID) Key Information Memorandum (KIM) make important reads before investing in mutual funds- they contain every little detail about a scheme, the investment objective and philosophy of the fund house.
Look for the investment objective
Investment objective talks about the scheme’s goal and investing rationale. It specifies where the funds will be invested, in equity, debt, or both. For example, if your fund aims to protect your capital, or give a regular stream of income, this portion will tell you how it plans to achieve its goal. For thematic or sectoral funds, the investment objective and strategy will tell you which sectors it will be investing in.
Spread your eggs in
different baskets
Investing across different schemes like debt, equity, balanced, index funds, gold ETF’s, etc. is a good idea. All of them have their own advantages and disadvantages; debt schemes ensure a certain level of return while they may not be as rewarding as an equity scheme which happens to be comparatively riskier.
Te all important task of picking the right fund is still the investor’s call.
