If If you cannot take the risk of investing directly in the stock market, then mutual funds are a good option for you. Here you do not need to do technical analysis, fundamental analysis and analyze your portfolio from time to time. Fund managers do this work for you. Here you also get the option of SIP, through which you can put small amount in mutual fund every month. Still, there are some things which you should keep in mind while investing in mutual funds. Let us know about them.
1. Know your financial goals
First of all, find out why you are investing. Ask yourself why you are investing. What are your financial goals and how much risk can you afford? Once you know this, choosing a mutual fund will become easier. You will be able to choose the mutual fund that suits your risk appetite. Also, you will be able to invest money in mutual funds with the right investment horizon as per your financial goals. For example, if you want to invest according to long term retirement, then growth oriented fund would be suitable.
2. Type of Fund
What type of fund you choose is very important. If you select a fund without thinking on someone’s advice, you may have to regret it later. You first need to understand the different types of mutual funds. Choose funds that best suit your investment portfolio. For example, if you want to get higher returns by taking more risk, you can invest in equity mutual funds. Debt funds invest in fixed income securities like bonds. They focus on generating regular income. The risk is less here. Whereas, hybrid funds invest in both equity and debt while maintaining a balance between risk and return. If you want to invest in a specific sector, you can invest money in thematic funds.
3. Fund Performance
While selecting a fund, it is very important to see how it has performed in the past. Check the returns of the fund in different time frames. This will give you information about the stability of the fund and its performance in different market conditions.
4. Load Structure
Exit load should be considered while selecting a mutual fund. The mutual fund company will charge you an exit load if you redeem your units before a certain time. This money is taken on early withdrawal. If you need to redeem your investment early and the fund imposes an exit load. This may reduce your returns.
5. Expense ratio of the fund
Mutual funds charge an expense ratio, which reflects the annual cost of managing the fund as a percentage of the fund’s assets. This is also something to consider while selecting a mutual fund, as the expense ratio is deducted from the fund’s assets, which directly impacts your returns. Choosing a fund with a low expense ratio means more of your money remains invested.
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