A mutual fund is the money collected from a large number of investors like you and me by AMC (Asset Management Companies ), and managed by a professional fund manager. A fund manager, who takes decisions about fund you need not to worry about market fluctuations. A mutual fund company creates a pool of fund and invests it in stocks, bonds or other assets according to scheme. This pool of the fund is called the ‘portfolio’ and each investor owns some portion of this portfolio in proportion to their investments. The portion which the investor holds is in the form of units, which represent a part of holdings. The income or gains earned from this investment is distributed proportionately amongst the investors after deducting some expenses, by calculating a scheme’s “Net Asset Value or NAV.
Important Factors that should be Considered Before picking up a mutual fund?
If you want to invest in Mutual Funds than you should learn some basic rules of mutual fund, learn more to get best Return from your investment. Mutual funds are subject to market risks but you can minimize the risks by choosing a right scheme. The important factors that affect the performance of your mutual fund investment, include.
1. Financial Goals
It is very important that why you are investing in mutual funds or what you are want to achieve from your investment like retirement planning, children education, buying a house/car wealth creation, tax saving etc. It helps you to pick a suitable scheme to invest In mutual funds.
2. Time Horizon.
Time horizon in mutual funds refers to the time for which you want to invest to achieve your goals and how long you can invest. Hence Mutual Funds are also categorized in term of Investment period like short term, mid term and long term. As an investor, remember that your choice of the investment horizon will play a significant role. So choose according to your goals.
3. Risk Tolerance:
In mutual fund investment the ‘Risk tolerance’ refers to the amount of risk that an investor is willing to take with his/her investment. It is mandatory for all mutual fund companies to display a riskometer which consists of 5 levels of risk associated with the invested principal amount. Mutual funds are also classified based on risk involved in the investment. The 5 risk levels are – low, moderately low, moderate, moderately high, and high.
4. Performance of Fund
The performance of a fund is very important, because it can tell you the past of a fund or how they has handled the portfolios associated with the fund. Ensure that you measure the performance over a significantly long period so that you know the pattern and can make a better decision and can analyze the risk involved in the investment with the fund.
5. Expense ratio
The expense ratio of a fund is the total percentage of fund used for administrative, management and all other expenses. An expense ratio of 1% annually means that each year 1% of the fund’s total assets will be used to cover expenses. Expense ratios are important to consider when choosing a fund, as they can significantly affect returns. Compare expense ratio with returns it offers.
6. Exit load
Exit load is a cost that an investor have to pay if he or she exits from scheme or sells units before a predefined time period. It is not mandatory that every scheme has exit load. It is always beneficial that you stay invested for a long term to reap good returns from your investment.
Note: Not take Investing as a side job be updated about market if you want to create better returns from your money