How Do You Pick a Good Mutual Fund in the Indian Market?
We Indians have been investing for quite some time now – it would be a lie to say we didn’t. Now, while speaking of investing, the first thought that probably popped into your head was the stock market or mutual funds, if I’m not wrong. But that’s because this market has become the interchangeable term for investment, and everyone is investing in them – would you disagree? Obviously, you wouldn’t!
We have hedged in different commodities for security and growth. One good example of that is gold. Gold can be kept on top of the list, especially for the Indian Market. Gold has been a hedge against inflation, and since the prices have only been positive the population still chooses to invest in them. In the same line comes real estate and bonds or whatsoever. So, with all of these options already at hand, why would you choose to invest in mutual funds? It helps you widen that investment horizon. Also, you can start off with just 500 bucks, not much, right? So let’s know how you can start.
What Determines a Good Mutual Fund?
Mutual funds are formed when an asset management company pools investments from different individual investors to buy securities. Asset management has fund managers that manage investments from the investors. Briefly, mutual funds pool investments from different investors to invest money in bonds, stocks, and other similar vehicles.
The mutual fund investors are assigned fund units that correspond to their quantum investment. These investors are let to purchase and redeem fund units at their current net asset value.
The net asset value of the mutual fund changes every day according to the underlying fund assets. Mutual funds are regulated by SEBI and can be considered as a safe investment box. A significant benefit of investing in mutual funds is that investors can broaden their portfolios at a lower investment amount.
How would you know what’s a good mutual fund, a fund that doesn’t drop in prices and acts favorable to you? But, how are we supposed to land up with the right fund? We’ll find out here.
How to Pick the Right Mutual Fund
You could either invest in mutual funds through Systematic Investment plans – here you will have to invest periodically in fixed intervals or through a single investment. While you can also open a mutual fund account, it is easy and convenient, given the mutual fund online process with just a few minutes and being paperless.
Here are some of the factors you need to consider to select the best Mutual fund for yourself.
1. Research! Research! Research!
When it comes to choosing the right mutual fund, there are various parameters but, before that, all comes research. It’s the very first step of any investment, let alone mutual funds. Research doesn’t just pertain to the mutual fund alone. It also revolves around the company, the region, the past performance and so much more. Research helps you come up with alternatives, backup plans, and much more. It’s quite important for you and your investment journey in the mutual fund environment. It gives you a clear-cut bird’s view for the long run effortlessly. All you have to do is spend some time doing quality research.
2. Think about Your Goal
Now, it’s hard to know what your goal is. It’s always hard to figure out the final destinations since our needs and wants to keep expanding. But it’s your job to find out why you are investing in mutual funds. You can’t just be doing it for the fun of it, for the kicks, or because friends are doing it. You are doing it to attain a goal. The hard job is knowing that goal. Your goal could be buying a house or retirement, which would be long-term. It could also be a trip, which is short-term. This also determines the type of fund you would want to invest in.
3. Take a Risk Analysis
This doesn’t just mean your risk appetite – it is also understanding the risks that would come along with each mutual fund and if it aligns with the risk tolerance you have. For instance, equity mutual funds would come with their risk tolerance a little higher and more ups and downs in the short term. But, if they are doing well, they are rewarded. This is more suitable for investors who are willing to take the risk and enjoy the high rewards.
4. Take a Look at the Expense Ratio
You have mostly heard what the expense ratio is. It is the commission you would be paying for the management of your investments. It’s important for you to look for a mutual fund that has a lower expense ratio because the expense ratio is calculated across an investor’s total portfolio and will have a great impact.
5. Give thought to the Taxes
Tax is something that you, especially if you are a beginner, must never overlook. The returns from your equity natural fund are taxed according to the holding period and applicable tax rate. Mutual funds are usually efficient in the terms of post-tax returns. And the taxes over your capital gains are going to be based on the long term and short term.
Here you cannot be told what is the best Mutual fund, because we never know how the future turns out. But with the right research and analysis you can anticipate the best ones for you, but also remember to check the above-mentioned factors.
It could seem daunting to start your investment journey in mutual funds, but honestly, it isn’t that way. It can be profitable and rewarding with the right steps.