Mutual Fund has become the buzzword of the Indian capital market. People from all walks of life invest in mutual fund today. The mutual fund market is crowded these days due to a variety of funds fulfilling different investor’s goals. Most of the investors are not aware about how to pick a winning mutual fund. The common apprehension of the investor is whether they have picked the right mutual fund. Guess what, most of the time investors would not be able to pick the real reason behind choosing the fund. A common belief system that exists in the new investor is that those funds who performed better in the last few years will be the best one. But it’s only a general assumption that doesn’t hold any truth. There are other parameters too, which an investor needs to consider before evaluating any mutual fund.
- Fit with the Investment Goals:
Before picking any mutual fund, an investor must evaluate which mutual fund suits best for their investment goals. Suppose your goal is capital protection, then investing in a capital appreciation mutual fund will be an investment blunder.
- Fund Manager:
Before picking any mutual fund scheme, it’s better to look at the history of the fund manager as well as her experience. Because the fund manager is solely responsible for whatever be the investment decision to be taken. An investor can also keenly observe the manager’s performance across various schemes. It will help you get an idea about her professional experience.
- Exit or Entry Load and Expense ratio:
An investor should always look upon the entry and exit load as well as the expense ratio before investing. Some fund types have a higher expense ratio, so it’s better to compare it with the other mutual fund in the same category. A Debt fund come with an exit load, if anyone sells before a certain period. These exit loads will affect your investment.
Performance remains one of the key metrics before selecting any mutual fund. So, by evaluating the performance of mutual fund, an investor gets a sense of risk and reward of investing in the fund. But always compare the mutual fund performance with the peers in its respective domain, whether it’s giving better returns compared to them. Looking at the history of the fund will help analyse its performance over the course of time, how it has performed in both bull and bear market.
- Scheme Asset Size:
This is one of the least prominent parameters to judge a mutual fund. But it does tell you about the broader picture of a mutual fund. There is a belief that bigger AUM under a Mutual fund, lesser will be the risk. But it’s not always the same case. Most of time AUM under Mutual fund doesn’t guarantee a better return, but in scenario of market volatility, it does provide a cushion to the investor that their money will be protected.
- Technical Ratios:
This is a special case, if you are an advanced trader, then it’s better to take a note of the ratios like Sharpe Ratio, Standard Deviation as well as alpha and beta.
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Also Read, how to choose a mutual fund
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.