How to choose a Mutual Fund

Earning money is not enough if you do not know how to save it or invest it. Besides real estate mutual funds are the most popular form of investment that individuals take for resting their funds. There are over thousands of options and schemes to choose from and it can be a daunting task for the uninitiated. But here we wish to provide you with information that will make this process simpler and fruitful and help you in choosing the right mutual fund.

There are several different types of mutual funds like the debt funds, equity funds, money market funds and so on. The objective of each fund varies; you must hence, choose a fund that is aligned with your investment plan and strategy.

Debt or equity funds

From debt funds you are assured of a regular income but which is low because these funds are low risk. They are most suited for short-term investment goals where you pay more importance to capital than potential returns.

Equity funds on the other hand yield high returns as they are invested in shares but they are subject to the fluctuations of the market and are not suitable for short-term investment. A comfortable time period would be five years or more. These funds are ideal for long-term investment goal because of their greater return potential and the lower probability of loss.

Thus for the first time a combination of debt funds and equity funds will be a suitable option to save for retirement.

Which is the specific fund to choose?

Next, you need to choose specific funds within each of these categories. Do not make the mistake of choosing randomly or by relying on others advice. The correct way to select funds is to identify funds which have been performing well over a long period.

How many funds to invest in?

To begin with, two to three funds are sufficient. Even these funds are diversified into various stocks. And choosing the growth option over dividend will be beneficial as the interest gets compounded periodically.

You can either choose a direct plan where you have to do all the groundwork, identify funds and keep tracking of them. This way you can cut the commission but if you are well versed in the market it can be intimidated and confusing and can even lead to losses.

Beginners should seek the help of an agent when investing for the first time.


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