Do common people have confusion about How to select Mutual funds? In this article we will guide you better. Mutual Funds are targeted investments for particular goals. There are different periods for different goals. The common people are not clear about How to select Mutual funds? and which mutual funds are suitable for their Goals.
Table of Contents
The Following steps of How to select Mutual Funds
Set your Goals
The investors set his primary goals like retirement, children’s education, tour, marriage. Investors have identified the purpose of investing in mutual funds and searching mutual funds as per goals. Those goals will be long term or short term.
Risk acceptance
Every investment is subject to risk as per market situation, as well as mutual funds. The investors have prepared for whatever risk they have prepared for that risk. Before selecting any investment investors should analyse mutual funds like past history, company profile, NAV value, interest rate, etc. Risk factors are different as per following types of mutual funds.
Equity Fund- Equity funds investors have invested long term capital by different companies that are expected to grow value for future. Equity mutual funds carry high risk depending on Economic conditions, market situation, individual company performance.
Debt Fund- Debt funds investors have stable returns compared to Equity funds, and investing long term capital by different companies that are expected to grow value for a short period. Debt mutual funds carry low risk depending on Economic conditions, market situation, individual company performance.
Risk Period
Defying risk periods as per selected mutual funds like high risk, medium risk, low risk.
| High risk | Credit risk fund, Hybrid fund | Multi Cap Fund | Mid cap fund, small cap fund |
| Medium risk | Low duration fund | Balanced advantages funds | Multi cap funds |
| Low Risk | Overnight funds, liquid funds | Short duration or gift fund | Large cap funds |
| Period | Up to 3 years it means this short term investment | 3-5 years it means this medium term investment | Above 5 years it means this long term investment |
Research mutual funds history and analysis performance-
Before investing in mutual funds, these are important steps for investors. Research mutual funds history and analysis 3-5 years performance and compared with other mutual funds companies. The investors should check types of mutual funds, interest rate outlook, credit quality, NAV (Net Assets Value), performance.
Select mutual funds-
After an analysis of the above things investors select a mutual fund for SIP (Systematic investment plan) or one time. SIP (Systematic investment plan) is investors pay every month invest in selected mutual fund and one time investors Lump sum amount invest in selected mutual funds.
Read all related documents-
After deciding mutual funds investors can carefully read all related documents and digitally sign with that document, and complete the all process.
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Important elements of mutual fund
- NAV- NAV is a Net Assets Value of companies’ mutual funds. This NAV value depends on that company history and past and recent performance.
- Fund Size- Fund size is the value of assets value under management, this value fluctuates of the primary investment as respective investment capital.
- Returns- Returns might be profit or might be loss. Returns are absolute amounts and percentage depends on investment performance. Investors continuously analyse historical returns, performance, returns percentage or amount, etc.
- Expenses ratio- Expenses ratio is the operating expenses of the funds such as management fees, administrative expenses, marketing expenses, or any other expenses. If low expenses ratio, then investors have high investment returns and vice versa high expenses ratio, investors have low investment returns.
- Exit load- Exit load is a fee charged from investors, when any particular investment redeems or sells before the mentioned documents specified holding period, this will be most of time charged for short term investment. Exit load charges vary from mutual fund type and mutual fund company.
- Tax implication- Tax implication in two types which is capital gain tax and dividend tax. The capital gain tax applies when selling an investment and investors have profit on that investment. The dividend tax applies when investors have received a dividend on investments.
- Holdings- In mutual funds investment, which company stocks are invested with the respective percentage of investment that mutual funds. Investors can review holdings of mutual funds with percentage of holdings before investing.
- Fund management- The particular mutual funds are elected professionals to observe all activities related to those funds.
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In conclusion How to select Mutual funds required investors financial goals, preparing for risk tolerance, and choosing mutual funds with awareness about equity for higher return and debt for stable return. Understand risk period along with mutual fund types and past performance history. Once investors choose mutual funds, he should review all related documents. Investors aware about key element such as NAV, Fund Size, Returns, Expenses ratio, Exit load, Tax implication, Holdings, Fund management
Equity funds, bond funds, money market funds, balanced funds, index funds, sector funds, and international funds
Capital Gain Tax and Dividend Tax
Investors should consider the consistency of returns over time and how the fund has performed in different market situation.