For an investor the best choice of a mutual fund is one suiting their risk appetite along with their financial goals. A mutual fund blog provides you considerable advice on how to choose a mutual fund. Let us explore them as follows
Time horizon specifies the amount of time you invest in mutual funds. This could be for 1 day or even for a period of 5 years. Varied category of mutual funds works for various investor types. The reason being some funds are short term funds and others long term funds. If you have a long time horizon of 5 years, then you can opt for equity funds. It is obvious that a market would be volatile in the short term as it is necessary to figure out more in details of the various fund types.
Risk tolerance refers to the risk an investor is willing to take in relation to their funds. SEBI in the year 2015 has made it mandatory to specify the various risk types for an investor. By understanding the various risk types along with fund categories you are in a better position to make an investment in the fund types of your choice.
How to go about choosing a mutual fund scheme
Once you have gone on to choose a mutual fund based on your time horizon and risk tolerance, choose a mutual fund based on the above categories
Consistency in terms of performance
A mutual fund should not generate returns as fly by night operations and consistent returns are to be provided over due course of time. The fund should be able to cash in on bearish and bullish period in stock markets.
Experience of fund manager
An important fact to consider is the experience of a fund manager and how long they have been at the helm of affairs. In relation to the fund in question you need to figure out the experience of the fund manager with the list of funds currently held or even managed in the past.
Performance as per category
It would be really important to figure out on how a mutual fund performs against its peer group in order to obtain a holistic approach to how the fund is performing over due course of time. This is a comparison better to be undertaken among the same type of mutual fund schemes. Say for example a large sized mutual fund can be compared only with a fund of that category and not a small sized mutual fund. SEBI has gone on to outline various types of mutual funds and it needs to following in the given category.
In addition you need to check out the asset under management of a mutual fund. When it is a case of small sized funds in an equity category it makes it really hard to enter and exit mutual fund schemes. Though size is of importance when it is a liquid fund. For large investors this type of funds offers less scope of redemption.