What are the basic factors to keep it in mind before investing in Mutual Funds?
An analysis may be done keeping in mind the investment objectives of the investor which normally varies from person to person depending upon their income, expenses, set financial goal, financial commitments like need of purchasing a home and vehicle, higher education of children, marriage etc. After deciding the investment objective, select and finalise the right mutual fund scheme.
What are the points to keep in mind while deciding the right scheme?
- See past performance of the selected schemes for the last few years. Also, compare with the other funds in the same category & risk adjusted returns achieved by the fund.
- Check the integrity of the fund sponsor.
- Ensure whether your hard earned money is going to be safe in competent and deserving hands by checking the experience of the fund management team.
- Check the investment objectives of the scheme and ensure it suits the financial objectives.
- Read the Scheme Offer Document (OD) carefully and depending upon your risk appetite, you may structure the portfolio as per market capitalisation bias and fund management style.
- Select a scheme which has got a low expense ratio as compared to its peers.
- Understand the tax implications of the respective mutual fund scheme.
- It is suggested to diversify the funds by investing in different schemes so that risk is reduced and you gain the benefits of investing in multiple industries and sectors.
Is Equity Scheme a long term investment option?
Yes. Equity schemes of mutual funds place your savings for a long-term inflation adjusted growth, so that the purchasing power of your hard earned money does not crash down over the years. Hence equity scheme is a long term investment option.
How do Mutual Funds give returns?
There are two ways by which mutual funds give returns.
- Capital appreciation: –Investors earn profit by selling units at NAV higher than the purchase NAV.
- Dividend distribution: –Investors receive profit in the form of dividend from the funds. Investors have option to re-invest such dividends in the fund or get it paid into their account.
What would you suggest to an investor having a long term horizon with high risk appetite and looking for high growth?
The suitable suggestion is to invest in Equity fund because equity as an investment avenue has proved to give the best returns over a long-term horizon.