Are there any tips to pick the best Mutual Funds to invest in? I was recently asked this question, which I believe is something which many people want to ask. Below are my thoughts on the same.
Today the Mutual Fund market is crowded with a variety of funds fulfilling a diverse set of...Are there any tips to pick the best Mutual Funds to invest in? I was recently asked this question, which I believe is something which many people want to ask. Below are my thoughts on the same.
Today the Mutual Fund market is crowded with a variety of funds fulfilling a diverse set of investment objectives. How do you pick a good Mutual Fund? What are the parameters you should evaluate a Mutual Fund on? These are obviously some doubts that will pop in your mind before investing in Mutual Funds, Below are few tips according to me to pick the best Mutual Funds in India. #1: Fit with your investment goals
One of the first things you must evaluate about a Mutual Fund is whether its investment objective is in line with your financial goals. If your goal is capital protection, and the objective of the fund is capital appreciation, then it’s a mismatch. If it’s a new fund offer, evaluate whether it has anything new to offer. #2: Performance
Though the disclaimers urge you not to consider performance, it remains one of the most important yardsticks to evaluate Mutual Funds. But don’t look at returns in isolation. Compare a Mutual Fund’s performance against its peers in the category. Is it giving better returns than other funds? Review its performance over time. How has it weathered the storm when markets fell? Did it fall less than its competitors? How has its performance been over time? Is it a consistent performer or is its recent performance, a one-time occurrence? #3: Expenses and Exit Loads
One of the factors that affect the performance of a Mutual Fund is its expense ratio. Some fund types (aggressively managed funds like sector funds v passively managed funds like index funds) have a higher expense ratio. Check if your fund is spending more than the average in the category.
Some funds, particularly debt funds, come with exit loads if you sell before a certain period. Check how these loads will affect your investments.
When it comes to index funds, an important factor to check is the tracking error. Index funds are passively managed, and their composition mirrors an index like the Nifty 100. Tracking error is the result of the fund’s inability to exactly mirror the underlying index. #4: Fund Manager
In many Mutual Fund schemes, the fund manager almost entirely takes investment decisions. Knowing who your fund manager is and his investing style will help you take a better decision. Check the manager’s performance across schemes. Also, check if the fund has done well even with different fund managers. This will give you an idea about the underlying strength of the portfolio. #5: Fund House
The pedigree of a fund house is also important when you invest in Mutual Fund. Is it a well-known, established brand? Does it have many funds that are top of the market? Is its investing style in line with yours? Does it offer a seamless experience to buy and sell your units? Can you buy and sell units online? These will make it so much easier for you to invest. #6: Technical Ratios
If you are an advanced investor, you might want to consider technical ratios like the Sharpe ratio, which gives you a risk-adjusted return. You can look at several other ratios, including standard deviation, R-Squared, alpha, beta, etc.
If you are planning to start investing in Mutual Funds you may chose HDFC securities. As an experienced investor, I’m certainly happy with HDFC securities and would definitely recommend it to others.
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