How to Pick the Best Mutual Fund Schemes? Know the Real Facts
Since the year 1964, when the Unit Trust of India has launched its first scheme, the mutual fund industry has come a long way. Today, you as an investor, get every facility to add efficiency to the entire process of investing in order to reach your financial goals effectively.
We have more than 40 Asset Management Companies (AMCs) which are potentially handling the investments of all the respective investors. Altogether the fund houses are managing the total AUM of Rs. 20.40 lakh crore as on September 2017, of which Rs. 2.79 lakh crore is the asset value of ICICI Mutual Fund solely as on that date. It is the largest fund house in terms of the assets under management. The competition to chase the top position is huge, which makes the fund houses to offer best products to the investors. But, the excess of anything can give birth to confusion, and exactly, the same is the situation of the investors. They find it difficult to choose the most suitable fund among a plethora of schemes. However, there are certain factors which can help you out in choosing the one that matches perfectly with your requirements. Let’s have a look:
Should I select a mutual fund scheme from the Top 5 AMCs?
Commonly, every investor looks for the funds of the top AMCs when it comes to choosing the best mutual fund to invest in. They believe that the schemes of the top fund houses will definitely provide more benefits. If you too have such belief, then let’s tell you that it is completely wrong. The capability of the funds cannot be decided by the position of the AMC only; however the position of fund house gets affected to some extent by the performance of its various schemes. A good performing scheme attracts more investors to deploy capital resulting in more AUM, which finally affects the size of the fund house. But, it doesn’t implies that the scheme of top fund house will always perform better. Rather, the performance totally depends on the excellence of fund managers, and other parameters such as market swings, policies, government regulations, etc. Therefore, drop the idea of choosing the scheme on the basis of the size of the fund house. It’s better to have a look at the other important factors which help in assuming the future run of the fund on the basis of a certain market scenario. Every fund house, at the start of their operations for the first time in the industry, had small capital. But, in the course of time, with their capability and strength to grow, they chased the heights and attained the top positions. Therefore, it majorly depends on how it performs and not on what it has achieved. A small sized company can also grow to become a large one using its core strengths and powers.
Never Ignore the Performance Track of the Fund:
In the process of selecting the most suitable fund, you may consider many factors as per their importance to you. But, never ignore the performance as it is one of the most crucial factors to be considered. The past records of the scheme help you know how it has performed in the various market situations and what strategies the fund manager applied to chase the situation for providing better output. By analysing the previous performance of any scheme, one can easily determine its capability under different market phases. Therefore, it is helpful for the investor in selecting the most suitable one that had performed well in all market times. Other than the past performance, there are some more crucial factors which should not be ignored while choosing a mutual fund scheme to invest in, namely:
- Identify Your Goals and Risks : Know exactly what you want to achieve and in what time. A rough imagination of achieving something is called illusion, and you should not be in that. You must have a clear vision describing your financial goals and a determined plan to achieve them. Once you understand your desires, you could make a fair comparison between schemes to select the suitable one.
- Know the Style and Type : Now you need to identify the investment style and the fund type by investing in which you can comfortably fulfil your financial dreams. Broadly, the funds are classified into three categories, viz., equity, debt, and hybrid. Each type is further categorised on the basis of its investment style such as aggressive, moderately high risky, low risky, etc.
- Consider the Expenses : Mutual fund investments let you earn millions behind which many fund managers put in their great effort to drive the movements of the schemes in the right directions. Therefore, the fund houses charges a small amount of fee as exit-load, or entry-load on the MF investments to reward those personnel. Different schemes vary in their loads charged. You can make a comparison between high and low charging schemes to reduce your cost.
Henceforth, with all the points as mentioned above, you can easily select the best fund for you. If you feel that you need for additional support on this, you can take help from our experts’ team to understand the various mutual fund fundamentals more clearly. We, at MySIPonline, always feel happy to serve you with the best we have.
- This Independence Day, Let's Pledge for Freedom from Financial Worries2096 min read Aug 14, 2018
- Are Balanced Funds Better Than Balanced Advantage Funds?2984 min read Aug 02, 2018
- 7 Points to Ponder While Investing in Small Cap Funds7973 min read Jul 19, 2018