Choosing the right mutual fund schemes is extremely important, as the wrong funds make you miss your financial goals.
Returns from Mutual Funds depend on the consistency of the fund you are investing in, and any wrong decision can topple your dreams, the reason you need to follow certain rules in order to achieve your future goals. When it comes to investing, we hear the term ‘Safe’, but what does that really mean? For some it would mean guaranteed returns, while for some it means protection of principal amount which should be returned no matter how odd the market conditions are. Safe investments depend on the products you choose, but before that you need to understand the risks involved with your investments. So, how does one really gauge this? Let’s have a look…
The foremost point that should top your checklist is referring to fund ratings. Though it’s a good habit to look for star ratings of the fund which are projected by expert analysts, it should in no way be the sole parameter to check the fund’s credibility. You should understand what really those star ratings mean. High ratings don’t always mean that the mutual fund is the best in its category, as you need to check many other important details before zeroing down the right fund that suits you best. Next in line is identifying your goals and understanding the risks involved before choosing the right fund. Have an overview of your own requirements first and then identify the time frame that is needed to get the returns, as sailing on a wrong boat means you can end up at the wrong destination. Listing all your goals and designing an investment plan accordingly is the smart way to achieve your financial goals via mutual funds investments. Keeping a portion aside for emergencies and contingencies is the smart way to handle things as one should not put all eggs in one basket.
You should always focus on the quality of securities before selecting the best mutual fund for SIP or one time investment. Some investors look for debt funds as they are considered to be low risk mutual funds, however there are various risks involved here too which can affect the performance of debt funds too. The best way while selecting a debt fund is to look for the percentage of allocation towards AAA or AA rated bonds, as these will decrease the default risk of the fund to a great extent. Investors should always look for the consistency in performance of any particular mutual fund over the years, as those looking at the past one year’s performance would not be able to gauge the exact potential of that particular fund. Looking at the past 3 to 5 years past performance will help you understand the fund’s potential. There might be occasional high returns due to favourable market conditions, but that doesn’t mean that the performance will be repeated in the future. Those funds which have given consistent performance over the span of 3-5 years are the ones you should look out for.
