Simple Ways to Choose Online Mutual Fund Investment Plans
We Indians have the liberty to choose from over 5,500 mutual funds, out of which there are 300 in the equity category alone, says an article on Business Today. However, in this case, being spoilt for choice is not a good thing because making a decision could become confusing. When it comes to investing in funds, you as an investor have to be careful because your investments will directly affect your long term financial goals.
Things to Consider Before Choosing a Plan
Before you invest your hard earned money in mutual funds in India, make sure the following has been ticked off.
1. Decide the Objective of Investment
Are you saving for your child’s higher education, to buy a new house, or maybe for an international vacation? Well, mutual fund investments offer better tax savings and returns than a savings account can. With a definite purpose and strategy in mind, you can take a well informed decision. A definite objective will also determine the amount of risk you can tolerate and, based on that, your portfolio can be created.
2. Know How Fund Houses and Fund Managers Work
A great fund house is one that takes you closer to your goal, manages finances on your behalf and retains your faith in the advantages of mutual funds. Therefore, before allowing a fund manager to take decisions for you, research and be well aware of their investment strategies, past track record and future expectations. Also, make sure the fund house does not offer the same funds under different names but has different funds suited for different investors.
3. Check the Fund House’s Expense Ratio
Small but regular investments could help you build a large corpus in the long run. The advantage of mutual funds is that even if there is a 0.5% difference in recurring costs, over a period of 15 years, it can make a lump sum difference. Most often, the bigger the fund size, the lower the recurring cost. Another expense is the exit load, which has to be paid by the investor if they decide to redeem their investment before a particular time. This is important to be aware of because different funds have different exit loads, depending on the assets they invest in. During redemption, the “first in, first out” method is followed, which means what is purchased first is liquidated first.
4. What Funds to Include in Your Portfolio
For non-negotiable long terms goals, choose equity funds. For short term goals, debt funds are better. The time period might vary from a few months to a couple of years. For goals that are negotiable as well, choose an equity fund in case of long term goals and a balanced fund in case of shorter term goals. Once you have determined the type of fund you need, go for the one with a good performance history.
You can make a better choice when you know your goals and investment purpose clearly.
