Picking the right mutual fund that best suits your investment needs can indeed be a daunting task given the plethora of mutual fund options one can choose from.
And given the fact that you are going to invest your hard earned money for future financial needs, it’s very important that you pick the scheme that gives you the best possible returns. Here are a few tips you could use to zero in on the fund that best serves your purpose.
Identify Your Investment Goals
This is undoubtedly the most important aspect to consider before investing in mutual funds. What are your investment goals and needs? Are they short term or long term? Do you intend to plan for your retirement or is there a near term goal in sight – such as buying a property or your child’s education.
Assessing your goals as well as clearly defining your long term versus short term strategy can help you appropriately pick and choose the schemes that best serves your investment goals. Age is also an important parameter when it comes to choosing the appropriate schemes as the younger you are, the higher would be your risk appetite which can be incorporated in your investment portfolio.
The best approach, however, is to come up with a decent set of schemes that will have the right mix of high risk as well as low risk investment options with the ultimate objective of serving both long term and short term goals.
Picking the Right Mutual Fund Scheme
Once you asses your investment goals, the next step would be to appropriately pick funds that best suit each of the scenarios. For instance, for long term goals, choose a fund that offers long term capital appreciation.
Long term capital appreciation funds are designed to factor in the market dynamics in the long run and are the best bets when it comes to decent gains in the long term. However, if you are risk averse, you could very well pick schemes that are more balance in nature by investing your capital in both debt as well as equity.
For short term gains, income funds work the best. The return on investment of course depends on the prevailing market conditions. However, the risk element is fairly less given the negligible exposure to equity.
Cost of Acquisition
Now that you have shortlisted the funds based on your long term and short term needs, next up is to determine the amount you would need to pay both in terms of entry as well as exit fees. While charges are pretty much standard across all mutual funds in India, you might want to consider opting for a no-load funds. Be advised, however, that no-load funds also charge some kind of fund management or administration fees. It would be a good idea to factor in the fees that are chargeable and the eventual impact it would have on your final returns before you decide upon the fund that works for you. However, be mindful of the fact that charges should not be the ultimate deciding factor when it comes to choosing the right fund.
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