Selecting the best mutual fund is not easy as there are various mutual funds. But to invest in any financial assets like stocks, bonds, mutual funds, etc., one has to dedicate their time to do a thorough research of all the options available to invest and then choose which asset or fund best set their goals, needs, and objectives.
Most investors rely on mutual fund rankings, stars, and ratings. However, this is one of the parameters to choose a Mutual Fund, depending solely on the rating can mislead because there are lots of other parameters to be considered before investing.
Here are a few points or criteria one should consider and follow before investing in Mutual Funds
Investment Objective
An investment objective is a set of goals that determines an investor's financial portfolio. The investment objective helps in generating income and growth over time.
Risk appetite
The term risk appetite refers to the maximum amount of loss that you, as an investor, are ready to take.
Time horizon of investment
This term refers to the time an investor would invest his/her money in mutual funds. If the time horizon is less than 3 years, you should prefer investing money in Debt Mutual Funds and if the time horizon is more than 3 years, you should invest money in balanced and Equity funds.
Comparison of the funds
For choosing the right fund, you must compare the like-to-like mutual funds. This comparison especially returns must be compared on a five-year basis for an equity fund and a yearly basis for a debt fund.
Fund manager’s Experience
Another important factor to be considered while selecting a mutual fund is the performance of its fund manager and how long he/she has been in this wheel. An investor should look at the fund manager’s experience and how he has managed current funds or funds managed in the past by him/her.
An investor can select the most suitable mutual fund scheme if they research thoroughly and work according to the above-mentioned criteria.