To save and invest for your financial security stems to be the major objective of most individuals. Though for many of us lack of knowledge and a busy lifestyle could prove to be a major stumbling block in the choice of the best mutual funds for SIP. Before the choice of a mutual fund we need to analyse some pointers before arriving at a decision.
Outline your goals with your investment objectives
Investments are made so that our savings enhance our ability to reach the goals. The investment should be in line with your investment goals. If you have a short term goal in mind be on the look -out for debt related funds. On the other hand for investors with a medium tenure, a balance of fund that has a good exposure to debt or equity would suffice. For a long term exposure you can relate to security.
Clearly understand where you have put in the money
Mutual fund managers pool in funds from various sources and invest in diverse securities as per a pre – defined investment strategy. Basically it is a portfolio which is managed by various professionals on behalf of individuals. It does seem to be an advisable practice for an investor to understand the purpose of a fund and outline the securities where the fund is likely to be invested. This means you can compare the performance of the fund among the peers. Your expected returns and even the associated risk of investment is something you need to keep an eye on.
The return and risk associated with the investment
Return and risk are an integral aspect of any investment. If an individual is able to balance these aspects it would enable them to earn substantial income on their investments. For this reason it is important to understand on the risk tolerance levels of an investor. This means the willingness of an individual as far as the subject of risk taking involves. The risk taking ability of an individual needs to be in line with the trade off in relation to a mutual fund. Considering the past performance of a fund an investor is in a position to gauge the risk and return associated with a fund.
The charges, fees and returns on the funds
For the services provided the mutual fund houses levy fees. These are termed as expense ratio and exit load. A combination of both these factors has a considerable say in determining the overall net result on investment. The fund houses do charge exit loads on investments that are redeemed before a fixed tenure. Before you make an investment an investor needs to be aware till what point of time the exit load is likely to be charged. This time frame has to be less when you compare it to the total time frame of the goal where you make an investment.
For managing the funds, expense ratio is the fees incurred by the asset management companies and this varies as per the nature of the fund.