Make The Right Choice Of Mutual Funds

The vital aspect to look at when choosing mutual funds is the turnover ratio of the respective fund. Secondly one should determine the purpose of taking the mutual fund, whether it is meant to provide income or to bring in returns. An income providing fund should be a bond or a balanced fund different from the investment funds that offer returns to smaller companies.

1. No-load mutual funds that those that do not fetch a commission when purchased. Also check that there are no hidden costs and those that have an excellent track record.

2. Check the track record of the mutual fund in question. A sound fund should have a track record of at least 5 years with a very high performance rate. Though there are many funds that have just cropped up and offer high returns, there is a possibility of suffering the downside of the fund at any time. On the other hand a mutual fund that has been in the market for 5 years or more will have the stability to overcome the market’s ups and downs.

3. Considering the present job scenario this aspect may not be possible, however, if it is, check that the manager of the fund has been handling the accounts for the last 5 years. Once there is a change in the handling manager, a lot of difference in the investment decisions can take place making it an unpleasant moment for account holders.

4. As a next step one should check the fund’s volatility, for example whether it has beat the benchmark and how well it has accomplished with the market values, etc.

5. Another vital aspect to consider is the expense ratio. What were the achievement cost and the expense ratio when compared to other funds? For example  if the expense ratio is 1.25% for a particular fund and a similar fund shows 0.75% then the first fund has outperformed the other by 0.5% each year.  

6. Finally the growth of the fund should be analysed. People tend to invest in a fund that has a short-term performance or if the manager tends to invest more in quality stocks which may hinder the cash flow and be harsh on the returns.

Use your own mind and look for the best mutual fund, not by the news gathered in the financial press release or in the local advertisements. Instead, you should look for a long term player that has been performing profitably well over the last 5 to 10 years in the financial market.

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