Wednesday, 2 November 2011

Mutual Fund, How to Choose profitable one to invest

When you wish to invest in mutual funds you must learn how to select a mutual fund or select a portfolio of mutual funds.  You can see a lot of mutual funds in the financial market and most of them are attractive at first sight. All mutual funds are coming with the statutory warning that the past performance may or may not be reflect in future. When you invest in mutual fund you wish to get a good return from it. The return may be a regular dividend or growth of the investment. But if you are not giving much attention you will get only an adverse result from mutual funds.



Do your homework well and in time.


If you wish to invest in mutual fund for a good return, you must spend a few hours and do some home work to collect all available details from two or three good financial websites about the mutual funds you wish to invest in and analyze the mutual fund with the details. 

Fix your financial goals with the mutual fund 

First you must fix the financial goal you have to satisfy with the return of the mutual fund, you wish to invest. Your financial goals may be a long term financial goal or short term financial goal or for a regular income. Before selecting a mutual fund you must find out the financial goal you have to satisfy with this mutual fund. 

Objective of the mutual fund 

This is the most important matter you have to check about a mutual fund. The objective of the fund may be a long term capital growth or a short one. It may be a close ended income scheme or an open ended equity scheme. You should check that the objective of the mutual fund you wish to invest is matching with your financial goals.

Investment strategy of the mutual fund 

You have to check where the pooled money collected from investors, invested in. Whether it is with short term financial market, government securities, bonds, any other mutual funds, gold or any commodities, equities, long term income schemes etc. Check whether your risk bearing capacity and financial goals are matching with the investment strategy of the mutual fund. Type of Mutual Funds to satisfy investors needs 

Check the ratings of the mutual fund. 

 The rating agencies such as CRISIL, Morningstar etc. rates the mutual fund according to its performance. The high rating mutual fund performs well. Even if the past performance may or may not be reflected in the future, this rating has its own value to evaluate the performance of a mutual fund. So check the ratings of mutual fund before selecting a mutual fund. Advantages and Performance of Mutual Funds

Mutual Fund house


Those who issue a mutual fund, normally in the name of a bank or any such financial institutions, say SBI Mutual Fund, HDFC Mutual Fund etc. is known as Fund house or Mutual Fund House. The Performance of the Fund house also important while selecting a mutual fund. But you must correlate all other factors which mentioned in this article. List of Various Mutual Fund Houses

Check who is managing the Fund

The pooled money of investors managed by a Mutual Fund Manager and his team, appointed by the Mutual Fund House. The Fund Manager skillfully run the team and decides where to invest, how to invest, when to invest and all other related dealings of the fund. If the fund manager is an expert person, the fund will win its objectives. So you must know the fund manager and his or her past performance.

Check the benchmark of the Mutual Fund


Benchmark means a standard against the performance of a mutual fund. There may be any index fund which is benchmarked for a mutual fund and the performance of the mutual fund will not be more than the performance of the benchmark index fund. So you have to check the performance of the benchmark also. Only very rare cases the mutual fund is performed well than its benchmark. If the correlation of the performance of mutual fund and bench marked fund is positive the fund is performed well than the bench marked fund, and vice versa, if it is negatively correlated.

Mutual Fund analysis


You can check the performance with some analytical methods also.

Expense ratio of the mutual fund: The ratio of all annual expenses with average value of assets of the mutual fund. Expense ratio affects the NAV (Net Asset Value of Mutual fund). If there are a number of mutual funds in the same category, choose the mutual fund with least expense ratio.

Entry Load and Exit Load: Some mutual fund has Exit load which reduces a certain percentage of money from the real value of the fund, when you redeem the mutual fund or Entry load which reduces a certain amount of money you paid while investing in mutual fund. The mutual fund with no exit load and entry load is better than others.

Standard deviation & Turnover ratio: Standard deviation shows the rate of volatility of a fund. Choose a fund with lover standard deviation which shows the lesser volatility. In case of turnover ratio choose a fund with lower turnover ratio.

Collect all the above details regarding a set of mutual funds and choose a better one with the help of all the details. 

Mutual fund, How to Choose profitable one to invest

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