Over the last two years, mutual funds have shown a strong growth rate. A large number of investors are opting to invest in mutual funds for the high returns and low risk. If you are considering investing in mutual funds, it is important to make a well-informed decision. With the number of options in the market, you might feel intimidated.
There are more than 7,000 equity-focused funds to choose from, and investors tend to get confused with the information available at their fingertips. Before making an investment decision, you need to align your long-term financial goals and the risk appetite.
You need to understand the goal and the risk category of the fund before you invest. Remember that investing in Mutual Funds Sahi Hai, but it’s better if your investment goal and risk profile matches the fund’s investment objective and risk category.
Therefore, here are five crucial questions you need to ask before you invest in a mutual fund:
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What is the goal of the fund?
You need to ensure that the goal of the fund fits the investment goals. Before you set out, you need to lay out your long-term financial goals and the purpose of your investment. Based on the same, you will be able to choose funds that meet your goals. It is ideal to pick funds that have the same goal as yours.
You need to decide whether you want growth, capital preservation or income. The strategy of the fund will be aligned in terms of its goals. If you want to grow your investment, you need to choose growth funds. If you seek regular income, you need to pick dividend funds, and for capital preservation, you need to choose a balanced fund.
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What is the risk associated with the fund?
There is no guarantee that you will make money from the fund. You might lose money if you make a wrong investment decision. Analyze your risk appetite and choose a fund that fits your ability to tolerate risk.
High growth funds will carry high risk. Balanced funds will carry an average risk, and debt funds will carry low risk. If you have a high-risk appetite and seek growth on your investment, you should choose growth funds. You need to understand the risk associated with each fund before making an investment decision.
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What are the past results of the fund?
Although the past performance of a fund will not tell you how it will perform in the future, it will help you gain an idea about how the fund stands in the market. When you are choosing from multiple funds, you need to compare the returns of the funds to decide.
Understand how it has performed in the last three years. Is the fund consistent over the long term? How was the fund affected in phases of market volatility? Consider the overall performance of the fund and see whether its objective has changed in recent years. In that case, the past performance will not be reliable for the future.
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How expensive is the fund?
While it is important to pick a fund that aligns with your objectives, it is important to ensure that the cost of the fund is minimum. Most funds disclose the expenses and fees in their prospectus.
You need to consider all the costs to understand what you will pay when you buy or sell the units of a fund. Also, weight what you are receiving for your money. Even a small difference in the fees can make a huge impact in the long run.
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Who will handle the fund?
The success or failure of a fund is dependent on the fund manager. Mutual funds are managed by professional managers who have an expertise in the market. They buy, sell and monitor the performance of the fund on your behalf. You need to consider the experience of the fund manager.
Does he manage other funds? How successful have his funds been in the past? What has returns the fund generated? High turnover is not a positive sign. You need to look for stable management and performance over the years.
It is best to read the fine print before deciding to invest. Understanding the past performance and features of the fund will help you grow your wealth over a period.
