Important Parameters to look at, before buying a Mutual Fund
OBJECTIVE: What is your goal? Your objective could be long-term, such as retirement, or short term, like kid’s higher studies or buying a property. It is important that the MF scheme that you select matches your goals. A long-term scheme would prove wrong for a short term objective and short-term scheme would prove wrong for a long term objective.
TIME HORIZON: How long do you want to remain invested? If you invest in equity- related MFs for a short time, the risk will be very high. If you invest in a debt scheme for the long term, the returns would not be enough to meet your goal. So, how much the period you need to reach your goal is important beforing buy Mutual Fund, the selected MF scheme will take to give the best possible returns if time is considered before buying it.
RISK APPETITE: How much capital erosion in your portfolio can you take? The answer will vary depending on factors like your liabilities, number of dependants and age, among other things. While some prefer to keep their portfolios intact even if it means slow growth, other are ready to take higher risk for higher returns.
ASSET ALLOCATION: How much should you invest in which kind of scheme? Distribute your investment depending on the kind of ‘assets’ the schemes invest in the asset classes could be equity, debt, real estate or gold. For example, if you have ample investments in stocks directly, you may want to invest more in debt funds than in equity funds. Asset classes have different behaviors. So, make sure you select the asset class and the amount of investment in it carefully.
RETURNS: How much do you expect to get back? Past results can’t predict future performance, but they can give an idea of how the scheme did in the past. Ideally, you should consider performance of at least the past 3-5 years.
FUND HOUSE: Which name to go for? Check not only the scheme’s objectives, but also its fund house’s track record and investment philosophy. See if the fund house is individual-based or process-based, it’s functioning transparent and ethical, and other similar factors.